November 24th, 2022 | 10:17 CET
Sharp price movements at Uniper and Varta, E.ON and Tocvan Ventures on the launch pad!
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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
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
E.ON and Uniper - Much speculation drives share prices
When E.ON separated from its power plant subsidiary Uniper in 2016, the group was unaware of how suitable the decision was at that time. In response to the energy transition, E.ON spun off the Company's coal, gas and energy trading operations to focus entirely on green power, sales and electricity and gas networks. Uniper had around 13,000 employees then and got off to a decent start on the stock market, although the shares could only be quoted well below book value. Nevertheless, the share price developed strongly and reached highs of EUR 42.2 after its initial listing at around EUR 10 in December 2021. For E.ON, it was a strategic spin-off and, in retrospect, a direct hit. The Finnish state-owned company Fortum acquired a stake of more than 70% in Uniper in 2020 with a total of EUR 6.5 billion. At the time, this was the right timing, as the Uniper Group was earning strongly from favorable energy imports from Russia.
However, with the outbreak of the Ukraine war, the Düsseldorf-based company took a downward turn. Due to the reduction of Russian gas supplies, Uniper got into economic difficulties, as at the same time, the contractual supply obligations to the utilities remained in place. In the fall, the German government and the Finnish parent company Fortum put together a stabilization package worth EUR 15 billion. The credit line of the state-owned KfW for Uniper was also increased from EUR 2 billion to EUR 9 billion. The German state also provided up to EUR 7.7 billion via a mandatory conversion instrument. On September 21, 2022, an agreement was reached in Berlin on an extended rescue package which, with the federal government taking over around 98.5% of Uniper's capital shares, meant a quasi-nationalization.
An extraordinary general meeting has now been scheduled for December 19, the Düsseldorf-based group announced. Uniper had reported the loss of more than half of its share capital at the end of October. Under stock corporation law, the Company must convene a meeting of its shareholders. The management can only provide information about the loss incurred and explain the Company's situation because Berlin is now making the announcements. Since the low in September at EUR 2.67, the Uniper share price has tripled as if by magic. The number of free shareholders will likely be around 1.5% of the subscribed capital. There is probably a lot of hot speculation at play overall! The chart of the former parent company E.ON appears much more attractive. With good fundamentals, it can also pay out more than 6% as a dividend.
Tocvan Ventures - The current drilling program sets the mood
Gold turned again at the critical mark of USD 1,650 and is preparing to climb the next hurdle at USD 1,750 to 1,800. The spot price should be well protected at the current level because, according to current figures from the World Gold Council, physical demand rose to 1,181 tons in the third quarter. That represents a 28% increase over the same quarter last year and indicates that gold has regained its status as a store of value.
Drilling continues consistently at the Canadian explorer Tocvan Ventures. The budding resource company from Canada now reported an expansion of current programs at the El Picacho gold-silver project in Sonora, Mexico. Initial drilling is focused on two main areas within the San Ramon project, Las Guijas and San Ramon. Both target areas have encountered high-grade gold and silver mineralization associated with abandoned mine workings. The Company plans to connect the lower-grade mineralization encountered in historical drilling to the higher-grade samples through targeted drilling. El Picacho hosts several drill-permitted targets spanning the 24 sq km project area.
"We are very excited to be drilling at El Picacho where there is no shortage of drill targets to evaluate the potential of this highly prospective area," said Brodie Sutherland, Chief Executive Officer. The El Picacho gold-silver property is interpreted to be an orogenic gold system within the Caborca regional gold belt, and over 13 million ounces have been produced here. The Pilar property has recently delivered some of the best drill results in the region. Combined with encouraging gold and silver recovery results from metallurgical test work, Pilar is poised to become a producing deposit soon. To date, over 22,000 meters of drilling have been completed there.
Tocvan shares (TOC) have lost some value in a difficult environment for exploration companies and can currently be traded in the CAD 0.39 to CAD 0.42 range. The market valuation of CAD 15 million is low for the current stage of development and is suitable for initial admixture in the Canadian "tax-loss season".
Varta - The battery expert rows back noticeably
And again, it goes to the old lows. The battery specialist from Ellwangen has yet to bring its investors any joy so far in 2022. After three sales and profit warnings, the management presented its latest figures in mid-November and reformulated the recently suspended guidance. It helped the mood only a little because the prices above EUR 32 were given up again ad hoc. Unfortunately, none of the statements provided any major surprises, and the bottom line confirmed what many investors had been expecting for some time.
After 9 months, a net loss of around EUR 20 million was posted, after a profit of EUR 75.9 million in the previous year. Sales for the full year are expected to be around EUR 100 million lower, which means an expected bottom-line loss of up to EUR 60 million. At the beginning of the year, profits of around EUR 200 to 225 million were estimated. Continuing price pressure on primary products and high energy costs are seriously impacting the Ellwangen-based company's balance sheet. In order to meet the current challenges, Varta is embarking on a severe cost-cutting program. Even the hopeful e-mobility is falling victim to this. Accordingly, the already announced battery plant is only to be implemented once there are sufficient binding customer commitments to justify the necessary investments. Irrespective of this, however, the first series production of the V4Drive battery is to start and supply Porsche as the first major customer. In response to the tense situation, around 500 employees will be put on short-time work. Because consumers are buying significantly fewer electronic devices due to general inflation, the dividend for 2022 will probably also have to be cancelled.
The analysts at JPMorgan and Berenberg maintained their Neutral and Hold ratings, respectively, but lowered their price targets by more than 30% to EUR 30 and EUR 35, respectively. That is not a good basis for share price expectations in the coming year. A miracle on the economic side will probably have to happen here for the scenario at Varta to improve significantly. The currently traded price of EUR 28.6 speaks volumes and is only a hair's breadth above the 4-year low, but the fundamental valuation has now reached more attractive ratios than at the beginning of the year. Put Varta back on the watchlist!
The stock market currently offers many opportunities but also bears risks. It is, therefore, essential to separate the wheat from the chaff. Uniper is now a state-owned company. For Varta, the situation is difficult but not hopeless. Gold explorer Tocvan Ventures is consistently taking important steps forward.
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