17. May 2021 | 09:59 CET
Saturn Oil + Gas, NEL, BYD: Here come the multipliers!
The stock market offers something for every type of investor: the cool calculator, the bold speculator and the rational decision-maker. The bull market in hydrogen stocks around the turn of the year was a case for daring gamblers: the technology is not ready for the market yet, and every investment is a bet on the future. Investors in Saturn Oil & Gas are likely to have felt like gamblers at times during the past year, which was marked by a collapse in the oil price that has now been compensated for. But since the end of last week, it has become clear that the share is also interesting for cool calculators and rational decision-makers. The reason lies in an acquisition that takes the Company to a whole new level and should also mean enormous potential for the share price.
time to read: 4 minutes by Nico Popp
"[...] 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: Acquisition boosts production by 2,000%
Last Thursday, Saturn Oil & Gas announced that it would acquire the Oxbow oil field for close to CAD 100 million. With this acquisition, Saturn Oil & Gas moves into a different league: Production is expected to increase by 2,000%, concession areas grow by 775% and PDP reserves increase by 1,300% compared to year-end 2020. After the acquisition, future 12-month net operating revenue is expected to be between CAD 65 million and CAD 70 million. By comparison, Saturn Oil & Gas' market capitalization before the announced acquisition was just over CAD 32 million. It should be clear that a revaluation will be necessary after the acquisition.
To finance the acquisition, the team around CEO John Jeffrey has pulled out all the stops and put together a mix of debt and equity financing. A full CAD 82 million comes from a credit line that runs for three years, but Saturn intends to repay within two years. The rest of the financing comes from equity measures. The Company did not skimp on details when announcing its takeover and even informed investors about the transaction in German. Saturn also emphasizes that it ideally wants to maintain its path of inorganic growth. Looking ahead, this promises further growth potential.
Saturn Oil & Gas: Management remains far-sighted and hedges its bets
The Oxbow oil field itself also holds great potential: Saturn Oil & Gas emphasizes that it is possible to exploit further potential there with a low capital outlay in order to continue organic growth and replace produced reserves. Saturn's management has already proven that it can organize organic growth step by step and was at times considered the most profitable oil company in Canada. In addition, the team is already familiar with the new property. In the acquisition announcement, CEO John Jeffrey refers to the region as the "backyard" of Saturn's previous area of operations in Saskatchewan.
While Saturn Oil & Gas is taking on a large amount of debt capital for the acquisition, with a corresponding interest rate, the Company emphasizes that it can pay off the line of credit even sooner. In order to be less exposed to the fluctuating oil price, the Company hedges up to 85% of its blowdown production against price fluctuations - the remaining market risk is thus limited. Only the potential organic growth, which the Company can control itself, is still fully subject to the price risk of the oil price. Given rising inflation rates and the comeback of the global economy after the Corona pandemic, Saturn Oil & Gas could not have announced the acquisition at a more favorable time. With the takeover now announced, management has delivered without making much of a fuss. Other market participants, such as analysts and research houses, are also likely to recognize that the transaction is a game-changer for the Company and are taking a closer look at the deal. Already at the end of last week, GBC Investment Research interviewed with CEO John Jeffrey and announced a digital roadshow with representatives of the Company for Wednesday at 4:00 pm. The stock of the growth Company Saturn Oil & Gas also comes into question for cool calculators and rational decision-makers after the latest acquisition. Like others in the past, the management's plan seems well thought-out. Moreover, oil remains the lubricant of the global economy despite the mobility revolution.
NEL: Here, too, they only boil with water
The performance of the hydrogen stock NEL shows that it can be worthwhile to focus on tried and tested sectors instead of future technology. The specialist for the production, storage and distribution of hydrogen has lost a lot of ground on the stock market. In the last three months alone, the share lost almost half of its value. Although the previous gains were also significant, more and more investors ask themselves whether hydrogen technology will really catch on. The latest quarterly figures from the industry were also not exhilarating. Above all, meager sales made it clear that the valuations of hydrogen shares may have lost a little of their reality. Recently, the stock showed a little momentum, but it remains uncertain to what extent this weak upward signal is a trend reversal. NEL remains a good hydrogen stock, but other stocks currently offer a clearer perspective.
BYD: Good substance despite weakening share prices
The Chinese carmaker BYD has also run out of steam. Here, too, the share price fell by almost 50%. Now that traditional car manufacturers such as Volkswagen have made a move towards electric mobility, investors wonder to what extent brands such as BYD will be able to score points with car buyers in the long term. Even in China, Volkswagen has the better reputation. However, this has not yet put a damper on short-term growth: BYD sold 42.2% more vehicles in April than in the same month last year. However, this growth should be taken with a grain of salt - after all, April 2020 was still a pandemic month in China as well, in which many customers may have lost their desire to buy a car. BYD nevertheless impresses with its battery production and good access to critical raw materials. Most recently, the Company announced its intention to float its chip division on the stock market. BYD thus underlines that it is well-positioned even in the chip market, which is characterized by scarcity, and can even collect capital.
Record takeover attracts attention
Shares such as BYD and NEL are currently battered in chart terms. However, the companies are positioned accordingly so that the price can recover. When that is, however, also depends on the mood of the market. Saturn Oil & Gas, on the other hand, is likely to receive undivided attention following the record acquisition - a production increase of 2,000% with just a single purchase is expected to attract the attention of many investors who have so far regarded the share as a gray mouse. The remaining weeks and months surrounding the Company, which intends to continue growing organically and inorganically, will be exciting.