September 14th, 2022 | 11:21 CEST
TUI, Almonty Industries, Bayer - Rebound after the sell-off?
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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
TUI - All bad news priced in
With the outbreak of the Corona pandemic, TUI's business model came to a virtual standstill. Ongoing new virus variants and lockdowns brought the group deep into the red, and ultimately the German government rescued the ailing group. With Omicron, the endemic situation seemed to be within reach. Germans are regarded as the world's travel champions, and after two years of restrictions, they should be thirsting for vacations away from home. Good conditions for the group, but then came the Ukraine conflict. Energy prices went through the roof, and thus inflation also rose significantly. When the cost of living increases significantly, among other things, people save on their vacations.
While the industry was still dreaming of record bookings at the beginning of the year, it was recently brought back down to earth. According to the Tats-Reisebüro-Spiegel, this year will not yet see a return to pre-Corona levels. Nevertheless, the latest quarterly figures give cause for hope. Sales increased by over 582% to around EUR 4.4 billion. EBIT increased significantly from EUR -630.5 million in 2021 to EUR -42.5 million. On a positive note, the statements by Health Minister Lauterbach, who recently ruled out lockdowns this fall and winter, can be viewed positively.
After pretty much everything that can go wrong has gone wrong in recent years, a large part of this has probably already been priced into the share price. Much will depend on how well TUI's summer business went. However, the figures are not expected until December. The Group can no longer really surprise on the downside. After the last figures, management stuck to its forecasts and expects adjusted EBIT for the fiscal year to be significantly positive. The share recently formed a double bottom at around EUR 1.42, which can be seen as a bullish sign. Currently, the share price stands at EUR 1.66.
Almonty Industries - Development of the mine is progressing
Almonty Industries is in the process of building the largest tungsten mine outside of China. The metal is one of the critical raw materials on which China has a near monopoly. After renewed tensions between the US and China, a large independent producer would be essential to become less dependent on the two major tungsten producers, China and Russia. The Sandong mine in South Korea can provide between 7-10% of the world's tungsten supply and will do so for decades. The lifespan is stated to be at least 90 years. The financing is secured by KfW, and the first two tranches have already been disbursed.
In addition to tungsten, the property also offers molybdenum deposits. On July 18, the Company released the first inferred mineral resource estimate of 21.48 tonnes at a molybdenum grade of 0.26%. There are greater synergies here as the project can be operated concurrently with the tungsten mine. This significantly reduces development costs and provides further upside potential for the Sangdong project. In addition to the property in South Korea, the Company has an existing producing tungsten mine called Panasqueira in Portugal. The experience gained from this mine will benefit the Company in developing the Sangdong mine.
Despite the overall positive developments, the share recently came under significant pressure. From CAD 0.95 in mid-August, it went down to CAD 0.65 on September 12. The reasons are currently not discernible. The tungsten price has climbed by USD 100 in the last year to over 350 per metric ton. The Company already has a 15-year offtake agreement with Plansee in its pocket, which provides planning security. At the same time, it has strong anchor shareholders in CEO Lewis Black, Plansee and Deutsche Rohstoff. Perhaps the 4th International Investment Forum on September 27 can provide clarification here, as CEO Lewis Black will present the Company and answer any questions from shareholders.
Bayer - Prostate cancer drug promises high sales
After a rally at the beginning of March, Bayer's share price recently returned to square one. The main reason for this is energy prices, which are hitting the Chemicals division in particular. Production declines of up to 10% were recently reported in this sector. In addition to the current energy issue, the glyphosate lawsuits are still causing uncertainty among investors. After the cases suffered a setback in mid-July, some victories were recently achieved. So things are looking up here. While the Chemicals division is struggling with difficulties, the Pharmaceuticals division is doing well.
The Group recently presented positive study data on the new prostate cancer drug Nubeqa at the ESMO Cancer Congress. On the one hand, the active ingredient extends life expectancy; on the other hand, it delays the onset of symptoms. Initial approval has been granted in the USA, with the EU, China and Japan to follow shortly. Applications have already been filed. The Group expects the drug to generate sales of up to EUR 3 billion, which would give Bayer its next blockbuster. On September 13, dpa reported that the head of Bayer's Supervisory Board was looking for a replacement for current CEO Werner Baumann.
The contract was not to be extended anyway, but perhaps something will change at the top of the group sooner. Since August, there have been 9 buy recommendations for the stock, with price targets ranging between EUR 70.00 and 98.00. The analysts from Jeffries were the most cautious, while Bernstein Research saw the most potential. Currently, one pays EUR 55.09 for a share certificate. Investors should note November 8 because that is when the Group presents its Q3 results.
In Germany, there is a certain consumer restraint due to inflation and fear of recession. For TUI, this could become a problem. Here, one should still wait and see. Almonty Industries, on the other hand, is on its way to becoming the largest tungsten producer outside China. The construction of the mine has been financed, and production is foreseeable. Bayer's pharmaceuticals division is doing well, while the chemicals division is suffering from the energy problem. Here, the following quarterly figures will be interesting.
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