Norsk Hydro vs Polish Coal: A €500 Investment Duel

Investor duel at €500 per company: Norsk Hydro vs Polish coal

May 2020. The European economy emerges from lockdown with broken balance sheets and stock markets in rollercoaster mode. In this scenario, two investors agree on something unusual: instead of exchanging loose opinions, each month they will propose a single company, discuss only that one, and buy it if they reach an agreement. The agreed figure is €500 per position, identical for both, so neither plays with an advantage. If consensus isn't reached, one decides in even months and the other in odd months. The first purchase closes in May.

The experiment starts with two stocks that look more similar than they appear. Both are cyclical commodity companies, both have suffered drops, and in both, the State is a shareholder. The difference lies in the product and, above all, in the trend.

Norsk Hydro or the Polish coking coal miner

The Norwegian bet is Norsk Hydro, a company with 34% of capital held by the State and a simple reading: whoever controls oil reserves won't run out of oxygen when bailouts arrive. It distributes around a 6% dividend, has a book value per share of about €4, declares cash flow of €13.8 billion and EBITDA of €9 billion in 2019. Some add a management argument: leadership with economic training that chairs the country's chamber of commerce.

Against it stands Jastrzębska Spółka Węglowa, Europe's largest producer of coking coal, with 55% held by the Polish State. Its multiples are stunning: P/E of 1.55, EV/EBITDA of 0.80, and price-to-book of 0.30. The reasoning is industrial and contrarian: no matter how much the renewable narrative is sold, coking coal will remain essential to reactivate industry.

Why has the Polish miner been falling throughout 2019?

Because it isn't cobi19. That is the criticism received by the coal thesis: the stock went from 60 zlotys to 19 throughout 2019, long before any pandemic existed. The drop responds to demand and a fundamental problem, currency. Poland has room to devalue the zloty and inflation above 4%, which eats away the appeal of a dividend calculated in local currency.

On the Norwegian side, the opposite occurs. The price remained stable since mid-2019 and the crash came with the bicho, not before. For the buyer, the sequence matters: an asset that falls due to the general cycle and another that falls on its own are not the same bet, even though both share state backing.

Can European industry be reactivated without coal?

Here the duel stops being a comparison of balance sheets and enters energy policy. It is argued that without coal there is no cheap electricity and that, without cheap electricity, industry leaves. From that logic, the closure of plants that some celebrate would not be an environmental victory but a concession of productive ground.

The example used is Germany: without its own uranium, it decides to shut down its nuclear plants and compensates with a Baltic pipeline to bring Russian gas. The alternative, according to this reading, is to burn coal again indiscriminately. The response from the other side is less epic: regardless of the narrative, the numbers of the company that was already falling in 2019 are what they are.

Xiaomi and the gap left by Huawei

For June comes the tech proposal: Xiaomi. The thesis is not the brand or the catalog, but the void peine by its main Chinese competitor. Huawei was accused of espionage and has lost the possibility of manufacturing phones with Android, compromising its access to the consumer market. If Xiaomi occupies that space in the mid-range, the ground is prepared.

The declared horizon is five to seven years, with an uncommon management rule: starting in the third year, if the stock takes off, a limit equivalent to the original investment plus 5% is set. The operation has technical traps. The same stock trades with three different codes: Frankfurt, Hong Kong with currency exchange, and in the chosen broker, forced lots of 200 shares, and a third in the US through an intermediary company that should be avoided. In this clash, there is also room for the automobile: some await the change in leadership at a French manufacturer with their gun loaded.

The broker, that unexpected battlefield

The plan to operate both on the same platform clashes with reality: the chosen broker has temporarily blocked new client registrations. The records arriving show something else disconcerting: number 1,562 for one and 2,969 for the other, with the order reversed relative to the registration date. The hypothesis of the country of residence doesn't quite fit.

Alternatives open up based on price. One mobile platform charges €1 per operation regardless of the amount; another charges nothing from €500 upwards, although its catalog is limited. Meanwhile, a traditional bank maintains a €20 commission for any purchase outside the Spanish selective index. For small portfolios and long horizons, the difference is not cosmetic, and explains why half the market is looking for an exit door.

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That is where the pulse stays. Two theses almost identical in form—old company, State inside, punished price—and opposed in substance: one waits for the rebound of what fell with the bicho, the other trusts that coal will become an industrial engine again. And a technical discrepancy that no one has resolved: when to enter Norsk Hydro, before or after the dividend, when the answer depends on a drop that hasn't peine yet.