August 21st, 2023 | 07:00 CEST
The correction wave is rolling: Adyen, Almonty Industries, Nel ASA - is a 100% turnaround quickly possible?
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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.
Adyen BV - Corrected expectations and a sellout
Who would have thought? Mobile payments and payment processing on the web should provide a secure business model in a time of advancing digitalization. But trees do not always grow to the sky in an economic downturn, not even for the successful Adyen. Last Thursday, the Company presented figures for the past half-year, which were far below analyst expectations. The share plunged by almost 50%.
The crux is found in the operating EBITDA margin. It was a disappointing 43%, compared to 59% in the same period last year, even though sales increased by almost 22%. Profit before taxes, depreciation and amortization was 10% behind at EUR 320 million. Management justifies the poor performance with high investments for personnel expansion, but this is now to be scaled back. Investors have been accustomed to years of growth and must now adjust to significantly lower ad hoc growth rates. From its all-time high in 2021 at EUR 2,750, the share price has now lost 68%. However, the sellout could continue.
Analysts reacted quickly with new ratings. Barclays votes "Equal-Weight" and lowers the price target from EUR 1,600 to 1,150. Jefferies downgrades from "Buy" to "Hold" and sets the price target by 58% to only EUR 850. The average on the Refinitiv Eikon platform was still a high EUR 1,295 before the figures were announced. Analytically, the Adyen share is still valued twice as high as the American PayPal. Except for technical countermovements, a significantly lower revaluation is therefore likely.
Almonty Industries - All on the runway
The situation regarding strategic metals is becoming serious. The US Department of Energy's (DOE) new Critical Raw Materials list has just been released. As a result, the battery raw materials copper, nickel, lithium and cobalt are considered critical, with 69% of the very rare tungsten also being supplied from China. The report explicitly emphasizes the high importance of these raw materials and substances for electrification and climate change. Without access to these metals, society's ecological and digital transformation will encounter obstacles.
Canadian explorer and producer Almonty Industries (AII) has already fully focused on the critical tungsten market with its properties in Spain, Portugal and South Korea. With its heat resistance, the hardening metal wolfram, or "tungsten" in English, is essential for the production of high-tech applications in the fields of energy plants, IT and armaments. In addition, tungsten oxide has good properties for use in new battery technologies. Global demand will therefore increase dramatically.
The Company's mine in Sangdong is now being prepared for production. According to estimates from analyst firm Sphene Capital, it is expected to start before the end of 2023 and deliver CAD 20.6 million in EBITDA next year. By 2025, operating surpluses could even more than double to CAD 45.2 million. Almonty's stock (AII) is currently trading at just CAD 0.51 due to generally declining trends among resource companies. As a result, the market value totals a modest CAD 116 million, which is a factor of 2.4 compared to the expected EBITDA in 2025.The experts at Sphene are in a good mood and have determined a price target of CAD 1.59, a good 200% above the current level. Most interesting!
Nel ASA - The hype is over; now it gets risky
Last week, there were several downgrades for the public darling Nel ASA. Although the half-year figures were not too bad, the industry lacks momentum. Fundamentally, there is still a lack of significant public orders for the future topic of "hydrogen". Unfortunately, the new technologies still lack economic viability compared to cheap fracked gas from North America. For companies, conversion to hydrogen must offer financial incentives in addition to reliable supply. Private investors will not jump on this bandwagon with a pure subsidy policy because it is foreseeable that only placative start-up financing is possible with the strained public budgets. However, there is currently no reason for a privately driven wave of investment.
Despite only slowly rising sales and permanent losses, the price of the Nel share increased tenfold between 2018 and 2021. From the top levels above EUR 3.20, the value has now gradually declined to below EUR 1.00 most recently. From a chart perspective, the share is now stuck in a catch-up zone between EUR 0.98 and EUR 1.05. Some analyst firms recently revised their euphoric expectations very sharply. With a "Neutral" rating, JPMorgan names NOK 11.40 as a new mark and even anticipates rising operating losses. Credit Suisse sets its assessment to "Underperform" and expects a sellout to NOK 8.00 for the share. Furthermore, a large capital increase is expected in order to meet the operating milestones. After our stop at EUR 1.25, we currently see no reason for new engagements. After all, Nel is still valued at a 2023 price-to-sales ratio of 10. Tangible earnings are not expected until 2026.
The energy transition will be a difficult undertaking. Moving away from fossil fuels requires huge investments, which themselves will only come into profitability after around 10 years. It is unlikely that there will be many private investors willing to provide upfront financing, and many states will not join in either. Whether the hot tech stocks will immediately rebound after the necessary correction remains questionable. Almonty produces the important metal tungsten and should soon be in the spotlight.
Conflict of interest
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