March 9th, 2023 | 10:49 CET
TUI, Saturn Oil + Gas, Plug Power - Three shares with doubling potential
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"[...] The Oxbow Asset now delivers a substantial free cash flow stream to internally fund our impactful drilling and workover programs. [...]" John Jeffrey, CEO, Saturn Oil + Gas Inc.
TUI - Setting the course for the future
On February 14, at the Annual General Meeting of TUI, Europe's largest travel provider, the foundation was laid to put the Group back on a stable footing. In a first step, ten old shares were converted into one new share. That reduced the number of shares to around 178.5 million. The next step will be a capital increase to repay the state aid and reduce net debt. As a result, the interest burden will also fall, and the financial situation will ease significantly. The risk of a renewed slump in business is no longer expected now that the Corona pandemic has officially been declared over in Germany.
Even though adjusted EBIT in the 1st quarter ended December 31 was still minus EUR 153 million, it is an improvement from the previous year by a good EUR 120 million. With 3.3 million guests, we are slowly approaching the pre-Corona level. Sales climbed to EUR 3.8 billion. In the previous year, it was only EUR 2.4 billion. At the time of the figures, the Group had already announced positive booking momentum for both the winter and summer seasons. Based on this, management expects adjusted EBIT to improve significantly in its forecast for 2023.
In terms of operations, things are looking up, and the financial problems should also be largely resolved with the next capital increase. It could put further pressure on the share, but after that, the course for the future will be set, and the share should then be on the watch list. The share is currently trading at EUR 18.55 and is thus above the 200-day moving average but below the 50-day moving average. The next support is at EUR 16.91, and the next resistance is at EUR 19.03.
Saturn Oil & Gas - Growing rapidly
In December, oil production at Saturn Oil & Gas was a good 13,000 barrels per day. Since February 28, it is now 140% more, with the acquisition of Ridgeback Resources officially completed on that day. With a production rate of 30,000 barrels, made up of 82% crude oil and 18% natural gas liquids, Saturn has crossed important marks that will provide the Company with new opportunities in terms of financing. At the same time, the Company is becoming more attractive to institutional investors. For the purchase price of CAD 475 million and about 19.4 million shares, the Oxbow asset will be increased by 5,000 barrels of synergistic assets, and Saturn will get a foot in the door in Alberta, considered one of North America's largest oil pools.
By comparison, in 2016, Apollo and Blackstone paid CAD 1.35 billion to buy Lightstream Resources, which then became Ridgeback Resources. Saturn now has 134 million barrels of proven and probable reserves and about 850 more drilling locations. That means the Company can sustain production for at least 15 years, which is also reflected in the figures forecast for 2023. EBITDA is expected to be CAD 475 million, and free cash flow per share is CAD 1.84, assuming oil prices average USD 80. By the end of the year, the current debt level of CAD 545 million is to be reduced to CAD 345 million. By the end of 2025, all debt should be paid off.
Production is not expected to exceed 30,000 barrels per day until the 2nd half of the year. Accordingly, it will take until the Q3 numbers to get an accurate view of the real numbers after the Ridgeback transaction. If drilling results remain as good as 2022, when expected numbers were beaten by 16%, there could be more positive surprises. The stock is still trading below book value, and the market capitalization is below the expected EBITDA of just one year. Debt repayment is also assured, with just over USD 1 billion flowing to the Company from hedging through 2027. For more information, you can visit researchanalyst.com. Currently, the share is still available for CAD 2.78.
Plug Power - Weak 4th quarter
Governments worldwide are investing in green hydrogen to meet climate goals and net-zero ambitions. In the US, Joe Biden has pushed a USD 370 billion climate package through the Senate. One of the biggest beneficiaries of this package could be Plug Power, which has much to contribute to climate goals because of its vertically integrated hydrogen supply. The Company aims to become the world's largest producer of liquid hydrogen in 2023. To do so, it is building a huge green hydrogen production capacity, which should lead to improved margins and higher profits.
Most recently, however, the group disappointed its investors once again when it presented its Q4 figures last week. Again, analyst estimates for both sales and earnings were not met. Sales at USD 220.7 million were around USD 45 million below expectations. Negative earnings of USD 1.03 per share had been expected but ended up at USD 1.25. Year-on-year, sales were up 36%. Management reiterated targeted guidance of USD 1.4 billion in sales and a gross margin of 10%. 2022 is seen as a transition year, and activities are now expected to bear fruit.
The hydrogen market is volatile, so positive news can quickly push the stock back towards last year's highs of USD 32. However, management has often disappointed investors recently, so the numbers need to improve first. The hydrogen market can be a huge market for the future, especially because energy from renewables needs to be stored somehow before a power grid becomes overloaded. The group has spread its projects around the world, so it is well-diversified. Against this backdrop, the stock has the potential to double. Currently, the stock is trading at USD 13.67.
Of the three candidates analyzed, Saturn Oil & Gas has the most potential to double, as the Company is already earning high profits and is fundamentally undervalued. Second place goes to Plug Power because the hydrogen market has enormous growth potential, and many subsidies are given here by governments. TUI is in third place because a capital increase is still pending. After that, however, the share could well be worth a look.
Conflict of interest
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