August 25th, 2021 | 12:02 CEST
Saturn Oil + Gas, Gazprom, K+S - Watch out: Single-digit P/E ratios here!
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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
The native Rhineland-Palatinate has been a passionate market participant for more than 25 years. After studying business administration in Mannheim, he worked as a journalist, in equity sales and many years in equity research.
SATURN OIL & GAS INC - Quarterly figures ahead
The Canadian oil and gas producer has entered a new league with this summer's completed acquisition of the Oxbow property in southeast Saskatchewan. Oxbow's facilities currently produce nearly 6,700 BOE per day. That multiplies Saturn's output. Also advantageous is extensive existing infrastructure on the site and direct pipeline connections to the global distribution network. The Oxbow property covers 11,484 sq km of land with over 1,000 producing wells, 2,500 km of connected pipelines and 244 wells ready to drill. The purchase price of the property should be recouped within 2 years at the latest.
Investors are eagerly awaiting Saturn's next quarterly results. On August 30, the key data for the second quarter will be published, and on November 29, those for the third quarter. The Q2 data will be negatively distorted by one-off effects due to the acquisition and capital measure; from Q3 onwards, investors should then gain a sharper view of the Company's profitability.
It will also be interesting to see what management has to say about the future outlook in the coming quarters. Are further acquisitions on the cards? Currently, the Company is valued very low at CAD 65 million. The analysts at GBC forecast a P/E ratio of 1 for the stock for 2022 and 2023, respectively! As a price target, the experts formulate CAD 0.46, which should more than triple the share price.
GAZPROM PJSC ADR - The big picture matters
The news situation regarding Nord Stream 2 is somewhat irritating. After the US had vehemently opposed the pipeline for several years, there was a positive surprise in July. The German government and the US government announced a breakthrough. Most recently, there were various media reports that construction work on the pipeline would be completed this month.
Now the US government has recently imposed new sanctions directed against Russia over the Baltic Sea pipeline. Last Friday, the US State Department announced that a new report to Congress lists two Russians and a Russian ship involved in constructing the pipeline from Russia to Germany.
But this renewed barrage of interference will not change that the pipeline will be put into operation in the foreseeable future. As a result, the world market leader in the natural gas business will be able to significantly expand its market position in Europe in the future. In any case, commodity prices have moved to an attractive level in recent months, even if volatility is increasing. The Group currently has a market capitalization of USD 95 billion. The 2022 P/E ratio is only 4, and that is not all - shareholders can also look forward to a dividend yield of 11%.
K+S AG - Focus on the competitive situation and potash prices
The fertilizer group was unable to provide a further improved outlook when it published its final Q2 data. Consequently, this led to profit-taking, which has since depressed the share price by about 15%. The Group had raised its guidance for the current fiscal year some time ago due to rising demand and high potash prices.
The debt reduction and balance sheet strengthening achieved through the sale of the American salt business raising EUR 2.6 billion is noteworthy. The ratio of net financial debt to operating profit has now fallen to a factor of 2, a moderate level. In addition, the equity ratio has risen significantly to a comfortable 48%.
However, the share is currently reacting more to the price environment for potash and the competitive situation. In the last few trading days, high potash prices in Brazil boosted the share. Previously, the announcement by the raw materials giant BHP that it would focus more on the potash sector following the separation from its oil and gas business was unsettling. However, it takes several years to build up capacities. Thus, it should be possible for K+S to generate decent profits in the medium term. Based on average analyst estimates, the 2022 P/E ratio of the stock is 8.
All three companies described have a low company valuation. Gazprom has a superior position as the global market leader, but political risks cannot be ignored. A P/E ratio of 4 and a dividend yield of 11% are very tempting. K+S has a good position in a growth market, and its balance sheet situation has dramatically improved. In our opinion, the most attractive share is Saturn Oil & Gas. The stock market is still failing to recognize the true company value created by the recent acquisition.
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