October 10th, 2022 | 11:32 CEST
Where stable percentages beckon: Shell, Saturn Oil + Gas, Deutsche Bank
Table of contents:
"[...] 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
Shell and the mistakes of the past
The year's first half was very positive for stocks from the energy sector. The war made energy prices more expensive, and the big multinationals, in particular, made a killing. But the phase of galloping prices concealed some structural problems, especially at Shell and Co. The world's second-largest oil company has been struggling with falling production volumes for some time. The reason: For years, the big players in the industry were under pressure to go green. According to the motto "Better high ESG scores than growth," they plunged into regenerative projects and let the classic oil and gas business slide. For a long time, these investments were not opportune. But then came war and inflation.
Since February 24, it has become clear that we simply cannot do without oil and gas. At least not in the medium term. Harsh reality showed us what would be needed to switch to hydrogen and renewable energy. Many heating systems would have to be replaced, and energy storage systems would have to be created, and, in general, much more wind and solar energy would be needed. None of this can be done in a hurry. Consequently, the prices of fossil energy rose dramatically. Because of the now significant drop and the fears of recession, energy prices are coming back - and are spoiling Shell's figures. Last week, the group announced that falling prices would negatively affect the third quarter. The hesitancy around managing the current state was good for short-term gains, but in the medium term, the weaknesses are becoming apparent. Stocks like Shell lack a real growth perspective, even in the fossil sector. Acquisitions could follow - as long as the often narrow-minded ESG dictation allows in the short term.
Saturn Oil & Gas: Value, growth - and new beats?
By contrast, Saturn Oil & Gas, a mid-sized oil and gas producer, operates largely independently of the ideological guidelines of the financial industry and international investors. The Company started years ago as a kind of self-made project of local businessmen and geologists in Saskatchewan. As the team successfully drilled and developed the business on a small scale, opportunities opened up thanks to convinced backers. In the past two years, Saturn has acquired two oil fields and multiplied its production. Only recently, it managed to produce 12,000 barrels of oil a day. The Company continues to drill diligently, thus ensuring further growth. In the fourth quarter, production is expected to be between 12,300 and 12,700 barrels daily. There is further potential to bring new wells online. Saturn is also working to bring old wells back on stream cost-effectively.
Thanks to the acquisitions of recent years, Saturn Oil & Gas has reached a level where further organic growth can be achieved even more efficiently. Saturn is now a name that even larger service providers are happy to work with. Follow-up orders not excluded. Even further inorganic growth is conceivable. In the quarter that ended in June, Saturn generated a cash flow of CAD 14.5 million. Per share, this corresponds to CAD 0.45 in a quarter. At the current share price of CAD 2.70, this is an extremely moderate valuation. If one takes into account that cash flow could reach more than CAD 200 million as early as 2023 and thus exceed the current market capitalization, the stock should be downright dirt cheap in the eyes of many investors. Saturn is well positioned for both profitable acquisitions and debt consolidation, followed by a dividend payout. The recent move to the OTCQX® Best Market in the US, i.e. the highest OTC segment, should also be good for the visibility of the stock and the investment story. A recent presentation from the 4th International Investment Forum (IIF) can be found online. The share combines solidity with growth and is a value pearl in the more speculative small-cap segment.
Deutsche Bank: Sand in the gears, instead of "Lehman moment"
The Deutsche Bank share is far from being a second-tier stock. The share is more speculative - especially if you look towards Switzerland and see how the risk premiums for Credit Suisse are rising rapidly there. But what about the German banking leader? While rising interest rates are reviving the traditional bread-and-butter business with loans, uncertainty is also a burden. Business with takeovers and also in investment banking is unlikely to flourish at present. However, German banking stocks are far from a financial crisis 2.0, which is often being discussed. Challenging times in various markets are not yet causing a domino effect. However, the current market situation is enough for the figures to be worse than hoped. Whether the share can hold around EUR 8 is not certain.
If you want to invest in a safe and opportunity-oriented way, you should not only look at the big names or the supposedly safe business. If the business model weakens or the growth perspective is missing due to strategic decisions in the past, investors quickly refuse to follow a share. Conversely, investors like to jump on moving trains as soon as it is clear where the journey is headed. The Canadian oil producer Saturn Oil & Gas has now reached a critical size that makes it attractive even for larger companies. According to observers in Canada, a large US family office has already played an important role as a financier in past takeovers. The picture is becoming clearer with each quarterly report. The share is still trading at a moderate level of around CAD 2.70.
Conflict of interest
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