September 8th, 2022 | 13:22 CEST
1.5 trillion Dollar crisis or special boom? K+S, Globex Mining, JinkoSolar
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"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
K+S: From inflation winner to energy market victim?
Back to the energy market: In standard times, futures trading functions smoothly. Collateral is deposited and returned as soon as the transaction is ultimately completed. In the relatively leisurely energy market, this has not been much of a problem so far. However, if gas and electricity prices go on a roller coaster ride and the margins are not sufficient to cover the increased risk on futures transactions, there is an obligation to make additional payments, or the transaction collapses. According to Handelsblatt, industry sources say that more and more companies in the sector lack the necessary capital to participate effectively in trading. After support measures for Uniper in Germany and emergency aid in Sweden, Finland and Switzerland have now followed suit with financial injections worth billions of euros for players on the energy market. The aim has long been to avert a "financial crisis". What does this now mean for companies outside the market?
In principle, inefficient markets make for high prices. Industries with high energy consumption are particularly likely to suffer. Nitrogen fertilizer usually relies on gas for its production, but in any case, it requires a lot of energy. The K+S share has been anticipating these fears for some time. The stock was long regarded as an inflation winner, and, only a few years ago, it had its back to the wall, making the share a flawless turnaround story. However, as grain freighters from Ukraine are now on their way around the world again, and winter is approaching in our regions, the demand for fertilizer is likely to decline for the time being, also because of the high prices. The analysts at UBS are also somewhat skeptical about the K+S share and recently issued a price target of EUR 20.
Looking at the chart, a setback into this range would not yet be bad news for the share. Factors such as the extremely low 2023 P/E ratio of around 4 and the calculated dividend yield of about 7% are also supportive. Although these two key data are still subject to uncertainty, K+S has meanwhile turned into a solid stock. Given the energy crisis, however, investors should rather wait and see than take action. There is no pressure to act here.
Globex Mining: 200 trending and precious metals projects in one share
The management team of Globex Mining should also feel little pressure to act - after all, the Company has more than 200 commodity projects in its portfolio. In addition, there are 80 license agreements. The best thing about Globex Mining is that it is exceptionally broadly diversified. The Company represents copper, nickel, lead, gold, silver, platinum, palladium, manganese, titanium, iron, molybdenum, lithium, cobalt and rare earths. Globex Mining thus has both trend metals in the ground, which are urgently needed around renewable energies and electromobility, as well as classic nice-to-have elements, such as platinum, palladium and iron. Exposure to precious metals, which are always an alternative during crises, rounds off the portfolio.
Investors may now wonder what opportunities should lie in Globex Mining's "general store". In the past, the Company has known how to either sell projects or give them to competent companies and secure a share of the profits. In this way, short-term capital requirements decrease while opportunities gradually increase. If a project is actively explored, its opportunities steadily become clearer, justifying a higher valuation. In addition, Globex Mining not only has early-stage projects in its portfolio but projects with resource estimates or preliminary feasibility studies, such as around gold and lithium. Given the market capitalization in the double-digit millions and the recent stabilization of the share price, investors should keep the stock on their radar.
JinkoSolar: Special boom hits market leader, but be careful...
If you look at the streets in well-off residential areas in Germany these days, it is mainly craftsmen who are hard at work. Roofers, plumbers and PV professionals are making Germans' homes winter-proof. Solar systems in particular are the benchmark. Anyone who produces electricity on their own roof cushions rising energy costs and, at the same time, provides the necessary "juice" for a possible heat pump. For self-consumers, PV systems are worthwhile several times over given the tax confusion and mini feed-in tariffs. What many well-to-do Germans think of as a cash account or a securities account is a government program of measures elsewhere. In the USA, billions are to flow into regenerative energies. The solar fund LSF Solar & Sustainable Energy expects even better figures in 2023 than this year. The industry could grow by up to 50% after 40% growth in 2022. Quality leaders and price breakers have been companies like JinkoSolar for years. Although there is always a bit of lockdown fear involved here, the music around renewables is playing in China. But beware: The share is no longer an insider tip!
While companies from traditional industry are likely to suffer particularly from the energy price shock, former inflation winners such as K+S are slowly separating the wheat from the chaff. The downward pressure could continue for a while. On the other hand, all shares related to renewable energies are enjoying a special boom. Here, however, the market has already anticipated some positive developments. Commodity projects could occupy a unique position, as they can profit from this particular economic situation on the one hand and conserve value on the other. Globex Mining has more than 200 projects around trend metals and precious metals and should offer "deep value" given the mid-double-digit valuation of the Company.
Conflict of interest
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