Structural Crisis, Fears of Expropriation and Resource Potential: The Hard Truth About Deutz, Vonovia and Strategic Resources

Deutz: Defence hopes and tough cost cuts

Engine manufacturer Deutz currently stands almost as a symbol of the divisions within Germany's mechanical engineering industry, where bright hopes for the future in the rising defence sector clash with a somewhat bumpy industrial economy.

Following a sharp pullback from its previous annual high, the stock is battling persistently to establish a sustainable technical bottom on the stock market. The share price has recently come under pressure, partly owing to weak signals from the MDAX and general market fluctuations, even though leading analyst firms continue to issue some very optimistic price targets.

On the operational side, the picture on the one hand shows a strong 29% increase in order intake in the first half of the year, alongside moderately higher revenue of EUR 1.12 billion. On the other hand, actual engine production remained rather subdued. To safeguard profitability in the face of this discrepancy, management has, according to internal reports, cleared the way for up to 400 job cuts, primarily in the traditional smaller-engine segment. This restructuring is accompanied by the strategically important acquisition of Flensburger Fahrzeugbau Gesellschaft for around EUR 1.6 billion, through which the company aims to expand its high-margin defence business substantially.

In valuation terms, the share is currently trading at a fundamentally fairly moderate level, with a price of around EUR 10.10 and estimated annual revenue of EUR 2.4 billion. The Cologne-based group faces an important test on November 5 with the publication of its nine-month results. If the management board can demonstrate then that growing orders are finally being translated into actual production output, the share certainly also offers an attractive entry opportunity at its current level.

From a technical perspective, however, the share must not fall below EUR 8.50 again. That would put an end to all bullish dreams for the time being, and the share would have broken out of its established upward trend. Above the EUR 12.50 mark, by contrast, momentum could accelerate and take the share towards EUR 15.

Vonovia: Political Shockwaves in Berlin and Interest Rate Pressure

Europe's largest residential property group, Vonovia, remains under pressure this autumn, caught between regulatory hurdles and nervous capital markets. At prices around EUR 16.40, the stock is moving close to the lows of recent years. The main factors are a challenging combination of high debt and political headwinds from Berlin. While US real estate stocks are showing surprising strength despite rising bond yields, German property companies such as Vonovia are feeling the effects of changing interest rate conditions directly in their share prices.

Fundamentally, the group successfully refinanced around EUR 4.4 billion in the first half of the year at an average interest rate of approximately 3.2%, but the heavy burden of liabilities remains a constant companion. Particularly serious, however, is the latest escalation in the federal capital, where potential coalition partners are agreeing on a roadmap for bringing housing portfolios of 10,000 units or more into public ownership. Vonovia, which manages almost 140,000 homes in Berlin alone, sees these plans as an existential challenge and is announcing determined legal action against the proposal, which management considers unconstitutional.

Despite a mathematically generous dividend yield and a low book value, the drastic price target cuts by analyst firms such as Morgan Stanley, which lowered fair value to EUR 14, for example, reflect the massive uncertainty. For long-term investors, it remains to be seen whether the legal challenge proves effective and whether the upcoming interim report on November 4 can provide a little more clarity. As long as the political sword of Damocles hangs over the Berlin portfolio, the share remains a highly speculative proposition despite apparently attractive metrics.

From a technical perspective, however, the share is currently oversold. It would therefore come as no surprise if it started to rebound. The only question is whether that happens here at EUR 16, or whether it first has to move another level lower before heading back up. In the event of a rebound, the EUR 20 mark could serve as a target zone.

Strategic Resources: Green metals for the steel revolution of tomorrow

We turn our attention to a significantly smaller company. Canadian resource developer Strategic Resources could nevertheless increasingly attract attention, as the company is positioned precisely at the crucial future interfaces of low-carbon steel production. The share is currently trading at CAD 0.21 and has stabilised somewhat in recent weeks following an earlier pullback to CAD 0.16. Market participants are now waiting for a sustained breakout above the important technical resistance level at CAD 0.31, which could clear the way for a significant upward move towards CAD 0.40.

A genuine milestone is the participation, announced at the end of June, in the renowned EUR 17 million FutSteel project at Finland's University of Oulu, in which vanadium-rich magnetite concentrate from the Mustavaara project is being tested for innovative hydrogen-based steelmaking processes.

This official involvement in leading European research underscores the excellent quality of the mineral deposits, which also include the construction-ready large-scale BlackRock project in Quebec.

With planned annual production of around 4 million tonnes of high-quality DR-grade pellets at the strategically advantageous deep-water port of Port Saguenay and a solid partnership with Javelin Global Commodities, which includes flexible financing of USD 150 million, the company should have a fairly solid foundation.

The combination of government backing, abundant hydropower at low electricity costs and critical metals of the future positions Strategic Resources promisingly for the upcoming transformation of industry.

The agreed cooperation with Tyfast Energy to evaluate battery-grade vanadium oxides for modern energy storage systems also provides additional upside potential for the coming quarters.

With a clear focus and disciplined project development, the share offers an exciting option for investors looking to make targeted investments in the green raw materials transition.

Conclusion

Deutz impresses with its defence-related upside potential and strong order books, but must now prove in its upcoming quarterly results that production can keep pace with expectations. Vonovia is currently suffering from a combination of high debt and wild expropriation fantasies in Berlin, which calls for caution despite low share prices. Nevertheless, a rebound could occur at any time. Strategic Resources presents itself as a strategically well-positioned and forward-looking raw materials developer that impresses with its clean iron and vanadium projects in Canada and Finland.