SMA Solar, Royal Helium, RWE - Beware of inflation

Scarce raw material

Everything is getting more expensive. Whether it's steel, plastic, or even corrugated cardboard to send Christmas presents, it increased by over 40% YOY. Copper, lithium and nickel reached new highs on the futures exchanges. Even coal and oil, the fossil fuels that are supposed to disappear in the next few years due to climate change, multiplied since the Corona crash in March 2020.

The price curve for the chemical element with atomic number 2, helium, a colorless, odorless, tasteless, non-toxic gas, has also been pointing steeply upward for years due to a sharp drop in supply, the lowest in two decades. The element, which is critical according to the US government, is experiencing a considerable increase in demand right now from a wide variety of industries. It is a highly sought-after commodity in medical technology, semiconductor manufacturing, space exploration, fiber optics, nuclear power generation and other advanced technology sectors. According to market estimates, the global helium market could potentially double by 2030.

Government support

At just EUR 13.47 million, Royal Helium, a pure-play helium producer, is virtually unnoticed on the stock market. Yet, the Canadian company has the potential to become one of the big players in the market. In May 2021, Saskatoon-based Royal Helium announced a significant helium discovery at its Climax project, potentially one of the largest in Saskatchewan history. Covering over 400 sq km of land in southern Saskatchewan, test drilling at the Climax I to III projects showed commercially viable helium concentrations, allowing Royal Helium to move directly into production and generate cash flow. In addition, Royal Helium received drilling approval for its fourth helium well on the Climax block.

Strong support for the helium industry in the province of Saskatchewan comes from local politicians. The government has announced a Helium Action Plan to supply 10% of the global helium market share by 2030. Canada currently has the fifth-largest known helium resource in the world, with significant underground deposits in Saskatchewan. The province's unique geology allows helium to be extracted from dedicated wells that deliver high concentrations of the commodity but produce a low greenhouse gas emissions profile that is up to 99% less CO2 intensive than other countries.

"Royal Helium is proud to be playing a leading role in the sustainable development of Saskatchewan's world-class helium resources in partnership with our neighbors North American Helium and in collaboration with the Government of Saskatchewan," said Andrew Davidson, CEO of Royal Helium. "This is a tremendous opportunity for Saskatchewan to become a major supplier of helium, which is critical to the healthcare and high-tech industries both locally and globally."

Order from industry giant

Consolidation is the order of the day at SMA Solar, the maker of inverters for grid-connected, off-grid and backup photovoltaic systems, after a stellar surge following the announcement of its third-quarter figures. The stock, which posted double-digit gains last week, is currently consolidating in the range around EUR 45. According to management, the group can start the next year with a high order backlog, posted surprisingly strong increases in both EBITDA and net income, beating general consensus estimates. Despite global supply bottlenecks and a 4% YOY decline in sales, operating profit rose by a strong 30%. In particular, higher-margin products for smaller photovoltaic systems contributed to the positive result.

In addition, the Company from Niestetal in northern Hesse was awarded the contract by RWE to supply the system technology for the integration of the planned battery storage system, currently the largest lithium-ion storage system in Germany. SMA Solar is attractive at the current level, and the order situation is likely to improve further due to the tighter climate targets.

Scarcity is a problem globally for both households and industry. Helium is in increased demand, especially for medicine and aerospace. Royal Helium is a pure helium player and should benefit tremendously from local policies. SMA Solar is also well prepared for the future due to the expected continued strong order situation.