November 29th, 2021 | 10:06 CET
Saturn Oil + Gas, BP, Gazprom - Buy when the guns are thundering?
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Saturn Oil + Gas - Record results
The shares of the Canadian oil and gas producer Saturn Oil & Gas could not escape the wave of panic on the stock markets. Weaker prices are a good opportunity to build up or expand positions. After all, the business of the Canadians is first-class. Recently, the Company was able to report record results.
In the first full quarter after the acquisition of the Oxbow assets, the producer was able to increase the operating cash flow in Q3 by more than a factor of 13 compared to the same period of the previous year and posted CAD 13.9 million, which equates to a cash flow of CAD 0.55 per share. Of the free cash flow of CAD 9.5 million, almost half was invested in three successful wells. In addition, the Company continued to reduce debt. The debt position as of the balance sheet date was CAD 71.8 million. The share is currently quoted at CAD 3.11, bringing the market value to CAD 78 million.
In addition, the Company's CEO, John Jeffrey, announced that the Company will continue to systematically reduce its debt and aims to reduce debt by approximately 50% by the end of 2022. Other portions of the free cash flow will be invested in new drilling. Saturn averaged production of 6,970 BOE/d in the third quarter. A year earlier, the figure was just 499 BOE/d. According to the Company, the output is currently around 7,050 BOE/d. Given the solid operating data, we believe the share is currently undervalued.
BP - Further share buybacks decided
BP's share prices declined less sharply than crude oil prices in recent days. The rising demand for oil and higher prices led to very decent figures in the third quarter, excluding a one-off effect worth billions. Adjusted for special effects such as valuation changes of oil inventories, BP posted a profit of USD 3.32 billion from July to September, up from just USD 86 million a year earlier. The quarterly dividend remained at the same level of 5.46 US cents per share. The Group announced that it would spend a further USD 1.25 billion on share buybacks.
The stock is favorably valued from a fundamental perspective. The 2022 P/E ratio is a moderate 6, and the dividend yield is a good 5%. Analysts believe the stock has an average upside potential of 26%. BP's market capitalization is currently the equivalent of USD 84 billion.
Gazprom - P/E ratio of 3!
In addition to the falling oil price, the difficulties surrounding the Nord Stream 2 Baltic Sea pipeline continue to weigh on the stock. Political resistance from countries such as the USA, Poland and Ukraine has been unmistakable in recent years. The German Federal Network Agency has interrupted its certification process and demands that the operating Company be organized under German corporate law. Now the Russian state-owned Company wants to set up a company in Germany, and the management board and supervisory board are also to be expanded. Then the certification process can be restarted. But there are still a few hurdles to be cleared at EU level. The Company's valuation is extremely low, with the shares being valued at only a 2022 P/E ratio of 3. Shareholders can look forward to a dividend yield of a whopping 16%! Analysts believe the share has an average upside potential of 35%. This figure already includes a significant discount for country risk.
All presented oil and gas shares are favorably evaluated. Further setbacks offer favorable entry opportunities. In addition to blue chips such as BP and Gazprom, this applies in particular to Saturn Oil & Gas. In our view, the Canadians have the greatest upside potential.
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