November 22nd, 2023 | 07:10 CET
Siemens Energy, Almonty Industries, BASF - Rebound underway, where is it worth getting in?
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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
Siemens Energy - Wind power makes for red figures
October 26 was a black Thursday for Siemens Energy shareholders. After it became known that the Company was in talks with the German government about state guarantees, the share price plummeted by almost 40% to EUR 6.40. According to Der Spiegel, the Company's survival was secured on the evening of November 6. The federal government is contributing EUR 7.5 billion, and Siemens and four banks are providing a further EUR 4.5 billion. The EUR 12 billion will enable Siemens Energy to fulfil its large orders. The main problem is the wind power division, which has been in the red since the merger with Gamesa.
This is also evident in the third-quarter figures. Losses from the wind business amounted to around EUR 2.78 billion, corresponding to a negative margin of 8.9%. The wind division only accounts for 30% of sales. That is the bad news. On the other hand, incoming orders have risen sharply, and a record order backlog of EUR 112 billion was reported**. The other divisions are well on track to achieve their medium-term targets. Nevertheless, the outlook for the coming financial year remains gloomy. In the best-case scenario, a margin of 1% should be achieved. The range extends from -2% to + 1%.
As the Group's energy grids make it a specialist in infrastructure, which needs to be significantly expanded due to renewable energies, the support from the federal government was understandable. In addition, wind power is to be expanded considerably in Germany. It is hoped that the quality problems identified at Gamesa can be rectified quickly. Fixed-price projects should be better calculated in future, as the uncertain supply chains and high interest rates create uncertainties that cannot be afforded. The share has more than recouped its losses and is trading at EUR 11.83. However, potential investors should wait for a consolidation before entering the market.
Almonty Industries - Earnings grow almost 3-fold
Almonty Industries is a specialist in tungsten. The raw material is not only essential for light bulbs but also for cell phones, microchips, cars and the defense industry. The emerging applications in the field of rechargeable batteries, in particular, offer significant growth potential. Only the Panasqueira mine is currently in production. There was a boost in earnings here in the last quarter. Income from mining operations in the first two quarters amounted to CAD 320,000 and CAD 241,000, respectively. In the last quarter, the figure was CAD 943,000 and thus almost tripled. This resulted in a positive EBITDA of CAD 1.74 million in the first nine months. But this is just the beginning. The Company also owns one of the largest tungsten deposits outside China, the Sangdong Mine.
This deposit has the potential to make the Western states somewhat less dependent on China. The restructuring and diversification of supply chains for critical raw materials is in full swing. Once the mine in South Korea has reached its full production capacity, Almonty aims to provide around 15% of global supply. There is already a 15-year offtake agreement with Plansee/GTP, which pays a minimum price of USD 235, guaranteeing Almonty USD 580 million in revenue. If the market price exceeds USD 235, as it does today at over USD 300, that price is paid. The mine has a lifespan of more than 90 years, and an annual EBITDA of CAD 72 million is expected. The 12-month start-up phase is scheduled to begin in Q1 2025.
In addition to these two projects, which are being actively worked on, there are plans to reactivate the Los Santos mine in Spain using the flotation technology of the Sangdong mine. This would require the Company to invest around USD 1.3 million. The focus is currently on the development of Sangdong, but this plan should be implemented as soon as sufficient funds are available. Anyone wanting first-hand information should make a note of December 5. On this day, CEO Lewis Black will present Almonty at the 9th International Investment Forum. The share is currently trading at CAD 0.50, giving the Company a market capitalization of just CAD 114 million. Once the Sangdong Mine is operational, these valuations will likely change significantly.
BASF - Sales challenges and higher costs
The chemical sector is facing a challenging time. High electricity costs in Germany and a slump in demand are making it difficult for companies like BASF to get back on the road to success. At least the German government wants to help with the price of electricity. Given the failed budget, whether this will be possible remains to be seen. The industrial electricity package is essential for the energy-hungry industry, especially as the market environment appears to be brightening. According to the German Chemical Industry Association, production is said to have increased again for the first time in the third quarter.
On October 31, the Group presented its figures for the third quarter. Sales of EUR 15.7 billion were 28.3% lower than in the same quarter of the previous year. EBITDA fell by 39.6% to EUR 1.36 billion. The high energy and raw materials costs caused the margin to fall to 8.7%, compared to 10.3% in the previous year. Adjusted earnings per share amounted to EUR 0.32 compared to EUR 1.77 in the same quarter of the previous year. Management continues to expect the targets set for the year. Sales are expected to be between EUR 73 and 76 billion and EBIT before special items in the range of EUR 4.0 to 4.4 billion.
At the beginning of the year, the Group announced it would invest around EUR 10 billion in China. The Chinese market is crucial for the Ludwigshafen-based company, as it will benefit from lower electricity prices there, strengthening its competitiveness. Analyst opinions are very divided. Three analyst firms rated the share as a Buy after the quarterly figures, three recommended Hold, and two recommended Selling. The price targets range from EUR 39 to EUR 58. The share, which rose to over EUR 45 after testing EUR 40.45 several times, is currently consolidating and trading at around EUR 43.58. Before entering the market, investors should wait and see the effects of the federal budget issues on the electricity price package.
All three candidates presented have the potential for positive performance in the future. With guarantees of over EUR 12 billion, Siemens Energy has enough buffer to complete its projects and learn from past mistakes, especially with Gamesa. Almonty Industries is poised to become a significant tungsten producer. The financing for Sangdong is in place; all parts are on-site, and with the opening of the mine, the share will be revalued. BASF is still making money despite the increased costs. Nevertheless, bureaucratic hurdles and the high price of electricity are counterproductive. As the industry brightens, this could be a positive sign for BASF.
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