May 17th, 2022 | 10:29 CEST
Varta, Nevada Copper, E.ON - Shares for the electrification of tomorrow
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"[...] If we pursue our goals conscientiously, the market will adjust its valuation accordingly, I am sure. Often, all it takes is a trigger. [...]" Ryan McDermott, CEO, Phoenix Copper
Varta - Weak first quarter
Copper plays an essential role in e-mobility. A battery for an electric car contains up to 18% copper. Copper also plays a role in conventional batteries because it is used as a cathode, as other precious metals are too expensive. So Varta also relies on copper. However, the market for batteries is not only growing because of electromobility. Nowadays, everything should work wirelessly if possible. Varta is particularly strong in the area of button cells, which are installed in wireless headphones, for example. But it is precisely this area that is weakening, as the latest quarterly figures show.
Sales fell by 9.3% to around EUR 185 million. At EBITDA, the losses were even more pronounced at 36.4%. In the Lithium-Ion Solutions & Microbatteries segment, revenues were only EUR 88.4 million, corresponding to a minus of EUR 27.5 million. On the one hand, this is due to the increased raw material and energy costs. However, above all, the Company is suffering from the supply chain problems of its customers. They cannot produce due to a lack of supply and therefore require fewer batteries from Varta. Only when the situation at China's ports eases sustainably should demand from Varta's customers return to normal.
Nevertheless, management is sticking to its forecasts for 2022 and aims to achieve sales of between EUR 950 million and EUR 1 billion. New products, which are to be launched in the second half of the year, are expected to contribute to this. A more detailed analysis can be found at researchanalyst.com. The unexpectedly weak quarter sent the share on a downward slide, which only ended at EUR 67.88. From there, the share gained to currently EUR 77.64. Analysts such as Warburg Research, JPMorgan and DZ Bank lowered their price targets to a maximum of EUR 95.
Nevada Copper - Mine ramp-up is progressing well
Major producers have sought larger copper deposits for years, but no significant deposits have been found. In order to meet the increasing demand, it is necessary to increase production. Nevada Copper, which produces copper from an underground mine at the Pumpkin Hollow project in Nevada, is contributing to this. Byproducts are gold and silver. For a long time, things were not moving forward, but the tide has turned with former Barrick Gold manager Randy Buffington. Financing was secured, and the underground mine production has been ramped up since then.
On April 4, the Company announced progress in ramping up production. Compared to Q4, development rates increased by 32%. Tons mined increased by 17%. In March, 3,000t of ore were mined for the first time. This figure is expected to increase to 5,000t in the coming quarter. Progress is also being made in open pit mining. Drilling is currently underway there with the aim of extending the large mineralization discovered in recent drilling. The updated pre-feasibility study is due in Q3. The Company is working with Warm Springs Consulting on a potential solar project, which is welcome from a sustainability perspective.
With homework done, debt reduced by 30% and repayments stretched, the outlook for the future has brightened significantly. At the end of 2021, there was USD 51.6 million in the coffers due to the latest private placement, which also brought two new strategic anchor shareholders on board. In addition to Pala Investments holding 37.6%, the new Solway and Mercuria each own 10.9%. Currently, the share is trading at 0.49 Canadian dollars (CAD), significantly below the private placement price of CAD 0.77. If production continues to increase, it is only a matter of time until the share price starts to rise.
E.ON - Mixed quarterly figures
The switch to e-mobility in Germany depends above all on a functioning infrastructure. Here, the electricity giants are in demand. The Essen-based E.ON Group offers various solutions. Whether a wallbox for the home or charging stations for electric cars, the one thing they all have in common is that copper is needed. The more powerful the charging stations are to be, the more copper is required. The Essen-based company has taken the first steps to becoming a green energy provider with these investments. There is still a long way to go, but the first thing to do now is master the energy crisis triggered by the Ukraine conflict.
Energy prices have been soaring ever since. Group CEO Birnbaum warned at the Annual General Meeting on May 12: "A gas embargo or supply freeze would exacerbate the problem." The Group had already presented its quarterly figures a day earlier. While sales increased YOY from EUR 18.4 billion to EUR 29.5 billion, EBITDA declined. Net profit fell to EUR 969 million, compared with EUR 1.02 billion. In addition, debt climbed slightly. The Chief Financial Officer said, "Despite the challenges in the first quarter, we are on track to achieve our earnings targets for fiscal 2022."
The Company is thus still targeting EBITDA of between EUR 7.6 billion and EUR 7.8 billion. Despite these somewhat mixed figures, the share hardly lost any value. That may also have been due to the dividend, which was a decent EUR 0.49 per share. The share is currently trading at EUR 9.85 and has almost made up for the dividend discount. Analysts are fluctuating between Hold and Buy. Price targets between EUR 9.80 and EUR 13.00 have been announced.
The supply deficit will remain for the time being and prices will continue to rise. Varta is not suffering from a copper shortage but is facing sales difficulties due to supply chain issues. Nevada Copper is growing step by step into a more prominent producer. With the new boss, things are clearly looking up. E.ON would suffer greatly from further sanctions against Russia. This uncertainty is currently preventing the share from breaking out to the upside.
Conflict of interest
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