March 14th, 2022 | 13:23 CET
The battery sensation: Varta, BYD, NIO, Power Nickel: Shares down, oil price above USD 150?
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"[...] Nickel, therefore, benefits twice: firstly from its growing importance within batteries and secondly from the generally growing demand for such storage. [...]" Terry Lynch, CEO, Power Nickel
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.
Varta - Moving forward with German technology
Today, consumers who are thinking about electromobility are primarily considering the performance of the battery. If the thoughts go a little further, environmental aspects are also considered more closely. Here, things still look very bad for battery production, the current life cycle and recycling. Innovations are therefore in demand!
Technology leadership along the lines of "Made in Germany" could be the magic word here. To steal market share from the powerful Asian manufacturers of batteries for electric cars, it is not only the products that need to be particularly good. The way they are built must also be set to ESG standards. One place where German battery technology is being led to the top is in Stuttgart-Vaihingen. For three years, researchers from the Fraunhofer Institute for Manufacturing Engineering and Automation (IPA) worked here with battery manufacturer Varta to build the Center for Digitized Battery Cell Production (ZDB). It was opened in mid-September 2021, and increased use of IT should enable the leap forward: "Digitization is the key to production in the future," says Varta CEO Herbert Schein. "With the help of artificial intelligence, we will take the production of our battery cells a big step forward."
The shareholders of Varta AG are pleased to hear this because they have now had to accept a halving in their shares since August 2021. The value is already down more than 20% in the current year. There are still no statements for the financial year 2021; however, according to the Company calendar, these will come on March 31 at the latest. In terms of the chart, it must not fall below EUR 75 until then; otherwise, trouble threatens - as the Varta share was only really cheap at the IPO price of EUR 17.50 in 2017. In the meantime, investors paid up to 8 times sales, and today the P/S ratio is still a whopping 4. Here, expectations for the future remain tight. Our advice: Wait for the figures for 2021!
Power Nickel - The explosion of nickel prices and the NISK project
That was a blow to the bottom line. The Russian crisis has caused nickel prices to skyrocket and led to huge distortions on the commodity markets. In the last week alone, the price of a ton of the industrial metal rose by more than 50%. At times it moved to over USD 100,000. Fortunately, it then fell back to USD 80,000 by the weekend. However, this still means that the steel refining and battery metal costs 4 times more than in December 2021. Trading has been suspended for a few days on the London Commodity Exchange (LME) to check market participants' imbalances.
According to experts, two dynamics are causing the extreme rise in prices: First, there could be supply bottlenecks due to the sanctions imposed against Putin. Russia is one of the world's largest exporters of nickel, with only about 48% of global nickel supply coming from Indonesia, the Philippines and other countries. Demand for lithium-ion batteries currently consumes 8% of the world's annual nickel production of 2.7 million tons. Second, short-sellers appear to be a major contributor to the price rise, as these short-sellers are now having to cover in a panic because of margin calls in order to avoid having to deliver at maturity.
Canadian explorer Power Nickel (PNPN) owns a flagship project called NISK in Quebec, as also described in detail in a report at researchanalyst.com. The Company also has a mining investment portfolio with an 80% interest in Consolidation Gold & Copper. Consolidation Gold & Copper, in turn, owns a 100% interest in the Golden Ivan project in British Columbia's Golden Triangle. In addition, because of its predecessor company "Chilean Metals", it is also well represented with various metal concession rights in Chile.
Power Nickel wants to focus on battery raw materials in the future. Nickel has been cheap until recently and is increasingly replacing other metals. Originally, batteries in e-cars consisted of equal parts nickel, manganese and cobalt. Currently, this ratio is already 5 to 3 to 2. In the long term, i.e. as technology advances, a ratio of 6 to 2 to 2 or 8 to 1 to 1 is also conceivable. Historical data for the NISK property is to be converted into a current resource estimate as early as the second quarter. The project stands for "Class 1 Nickel", meaning highly battery-capable material; therefore, one should profit from all trends around electromobility and energy storage.
Given the current lack of a resource estimate, institutional investors cannot yet get much exposure. The PNPN share has jumped from a low level of around 60% to CAD 0.26 in March, but many market participants are still not familiar with the Company. There is a nice treat at the end of the year. Then, the gold and copper activities will be distributed to the shareholders as part of a spin-off. Today, one should already be in the game not to miss the emerging momentum in terms of "nickel scarcity".
NIO and BYD - Delisting in the USA?
That Chinese technology companies are not taking proper accounting so seriously, for the time being, is not news. The SEC is now announcing strict measures against companies that do not comply with US rules. The run-up to the 2021 financial statements demands more clarification about political and regulatory risks from around 280 Chinese companies traded in the USA via so-called ADR certificates.
Among those affected are the well-known securities of Alibaba, Baidu, JD.com, NIO, Tencent, Weibo and XPeng, some of which have suffered double-digit price declines in recent days. Emerging automotive startup NIO is also on the list and has lost 60% of its share price value in a year. However, its market capitalization is still a high EUR 24.8 billion.
BYD has listed the Chinese share version in Europe in addition to the ADRs and is therefore still somewhat left out, but the value is now again 40% below the high of November 2021. The SEC has already named five companies, but the number of delistings will likely increase. In a direct comparison of Chinese automakers, we prefer BYD, which is protected by Warren Buffet. However, the risks across the sector are unmanageable at the moment.
War, destruction, scarcity - it all leads to inflation - a tough setup for stockbrokers. Whether any good numbers on a publication day help, is also increasingly dependent on the general mood. Thus, fundamental analysis is overshadowed by sentiment. However, under the flag of climate protection, profits will be made, if not today, then in a few months. Varta is positioned promisingly, and BYD can convince fundamentally. Power Nickel is an excellent bet on the potential nickel reserves, which should be confirmed soon.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") currently hold or hold shares or other financial instruments of the aforementioned companies and speculate on their price developments. In this respect, they intend to sell or acquire shares or other financial instruments of the companies (hereinafter each referred to as a "Transaction"). Transactions may thereby influence the respective price of the shares or other financial instruments of the Company.
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