October 17th, 2023 | 07:55 CEST
Varta, First Phosphate, Volkswagen AG - Great opportunities in bombed-out sectors
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"[...] Internally we expect the resource to significantly grow the deeper we mine. [...]" Dennis Karp, Executive Chairman, Manuka Resources
Waiting for the Varta figures
On November 14, things will get serious for the crisis-ridden battery manufacturer from Ellwangen. Varta will present its third-quarter results then. As reported in the half-year figures, the second six months of the year should go better than the first half. For the full year, EUR 900 million has been estimated so far.
CEO Markus Hackstein confirmed in a recent interview with "Handelsblatt" that the restructuring process will not be completed overnight. The traditional German company is facing headwinds from low-cost competition from Asia, a slump in demand due to consumer restraint, and high energy and material costs. "We are in the midst of a restructuring process that will continue for several years," said the Varta CEO. The reduction of around 800 jobs globally, which will be completed next year, is expected to help mitigate some of the high losses incurred last year.
According to the Company leader, losses are likely to be incurred this year as well, but the magnitude of these losses has not yet been communicated. From a chart-technical point of view, the situation of the Varta share remains delicate. A slide below the level of the interim low at EUR 16.75 would open the door wide to new annual lows from the beginning of June at EUR 13.82.
First Phosphate - Playing a significant role in the battery industry
The Canadian company is becoming increasingly important in terms of resource independence from countries like Russia and China, as evidenced by the expression of interest from the Export-Import Bank of the United States. The aim is to provide financing of up to USD 170 million to the mineral development company, which focuses on the extraction and purification of phosphate for the production of active cathode material for the lithium iron phosphate battery industry. In this regard, the letter of interest supports the procurement of US goods and services by First Phosphate in Canada. However, it does not represent a financial commitment at this stage. The bank must conduct its standard due diligence before giving a final "go" for this transaction. Access to this government-backed financing would include a significant expansion of projects. In addition, stable debt financing could protect existing shareholders from dilution.
First Phosphate's plan involves integrating directly from the production facility into the supply chains of major North American LFP battery manufacturers requiring high-quality active battery-grade LFP cathode material. First Phosphate owns more than 1,500 sq km of land rights in the Saguenay-Lac-St-Jean region of Quebec. The property contains rare anorthosite igneous phosphate rock that provides high-quality phosphate material without elevated concentrations of harmful elements. This material is expected to be processed into high-purity battery-grade phosphoric acid through a series of processing steps.
Thanks to a positive news flow in recent months, the stock has increased nearly 37% to CAD 0.35 from its yearly lows since mid-September. If the resistance level of CAD 0.40 is overcome, there would be a short-term potential of around 50% to the next resistance at CAD 0.55.
Volkswagen AG - Purchasing restraint noticeable
The third-quarter sales figures show growth in the electric vehicle segment for Volkswagen, but it is not the boom the industry anticipated at the beginning of the decade. Although the Wolfsburg-based company delivered 209,900 units, 40.5% more than in the same quarter of the previous year, there was still a noticeable reluctance to buy, especially e-cars. Volkswagen's share of electric vehicles in total deliveries rose to 7.9% from 7.4% in the previous quarter. The Company said the growth came mainly from a large backlog of orders from 2022.
In the first nine months, the Lower Saxony-based group delivered 531,500 battery-powered units. Europe accounted for 64% of the Group's deliveries, followed by China with 22%, North America with 10% and 4% from other markets. Sales in the domestic market increased by 61% and North America by a still satisfactory 74%. In China, Volkswagen achieved growth of only 4% to a still low level of 117,100 electric vehicles. Audi sales chief Hildegard Wortmann, who is also responsible for the division within the Group as a whole, commented: "As the general market trend is below expectations, however, our order intake is below our ambitious targets."
Following the delivery figures, the Canadian bank RBC expressed its views. According to the report, Volkswagen's delivery figures in the European sales market had declined compared to the second quarter, while they had risen sharply for the year as a whole. Analyst Tom Narayan thus reiterated the investment rating "outperform" and the price target of EUR 160.
In difficult stock market phases like these, active stock picking is essential. While investors should exercise caution with battery manufacturer Varta, analysts continue to see room for upside at Volkswagen despite the sobering quarterly figures. The expression of interest by the Export-Import Bank of the United States shows the importance of First Phosphate for the North American battery industry.
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