Let’s kick off with a double bill of ideas from Jefferies funds analyst Matt Hose.
First up is Riverstone. Now, I used to own this stock and championed it many moons ago in an FT column. It used to be a targeted private equity fund investing in the US unconventional energy space. Unfortunately the fund never really delivered on any of its promises and a few years ago I dumped the stock after years of chronic underperformance. Then the oil price collapsed and the unconventional shale sector went into a tailspin. At that point, Riverstone went off my radar.
But every dog eventually has its day and at some point, all the bad news is probably already in the price. Plus Riverstone has been reading the runes and recognized that in our ESG obsessed times, maybe it should do a bit fancy pivoting and embrace the Biden Green New Deal agenda – resulting in a change in investment policy.
This is where Matt Hose comes in via a note on Riverstone a few weeks ago. Its recently reported Nov of $582m, or $9.46/£6.85 per share, up 20.5% in USD terms for the quarter. Hose reckons that using current numbers the NAV is probably closer to $552m, or $8.97/£6.42 per share. The shares currently trade on a 43.4% discount to this NAV. The good news is that there were some portfolio uplifts and involvement in a SPAC or two. But crucially cash on the balance sheet was $53m as at 30/06/21, but Hose reckons that now closer to $221m following a recent deal, “with an additional c.£104m currently held in freely marketable securities, predominately CDEV and CNOR – now Pipestone Energy (PIPE). Together, this liquidity represents 59% of NAV, and outweighs the fund’s current market cap of $310m”.
Now there is likely to be a drawdown on that cash to fund new commitments, probably costing around $100m, but there is a significant margin of safety built-in there and who knows maybe that pivot towards green energy might start to pay off and help narrow the discount. In the meantime, there could be some more share buybacks. I might be tempted to add this fund to me Alternative funds trading list.
More on the shipping funds
Sticking with Matt, he’s also initiated coverage on the two shipping funds – see also my blog from last week on the subject. Both funds are rated a buy,
“Taylor Maritime Investments (TMI, Buy): The fund is focused on Handysize ships – the most versatile of the bulk carriers, able to operate at a large number of ports due to their smaller dimensions. Both charter rates and vessel valuations in this segment are currently demonstrating significant strength. Yields in excess of 20% have resulted in high implied dividend cover of 2.7x on just the initial 17 delivered vessels, with a further two vessels since acquired, and an undelivered fleet of six. This points to potential upside to the $0.07 initial dividend target. Notably, the current 5.9% dividend yield is supported without any assumption of long-term debt, and the fund is also self-managed. The shares trade on a 5% premium to our estimated NAV, although this becomes a 3.6% discount if we attempt to adjust for the latest market pricing of ships.
“ Tufton Oceanic Assets (SHIP, Buy): We see diversification as the watchword of SHIP, ensuring the portfolio is diversified by vessel type and charter type/length. SHIP has also been active in acquiring vessels at low valuations, recycling capital from vessels that can be sold above long-term averages. At present the portfolio is skewed towards hotly demanded containerships, and tankers. The former have reversionary value as existing charters come to an end and can be contracted at the much higher current rates, while the latter are fixed on long-term charters, above the current weak charter rates. A net yield on the portfolio of c.14%, with forecast dividend cover of 1.7x over the next eighteen months, points to further upside to the fund’s 6.6% dividend yield. The shares trade on a 3% premium to our estimated NAV, becoming a 6.4% discount if we adjust for the latest market pricing of ships.
To repeat, I have a slight preference for Tufton which I think is cheaper and has a track record it can point to.
Lastly, Invesco has just launched a very useful new ETF – the Invesco Solar Energy UCITS ETF which tracks global companies that are leading the world in solar energy technology via the MAC Global Solar Energy Index, “which was developed by leading solar industry experts and is now administered and calculated by S&P Dow Jones Indices.”
Here’s the blurb behind the index : it focusses on companies deriving a significant amount of their revenues from (a) producing solar power equipment including tracking systems, inverters, batteries and other energy storage systems, (b) supplying raw materials, components or services to solar producers or developers, or (c) solar power system installation, development, integration, maintenance or finance. The index is weighted by modified market capitalization, which adjusts each company’s weight based on the proportion of its revenues that are derived from solar businesses.
The table below shows the main holdings in this specialist, pure play ETF. Obviously, the solar industry is a brutal one – until recently price competition was intense as technology and engineering improvements drove down price points. Prices have recently started increasing and who knows, maybe all that Biden Green New Deal money might give the sector an adrenaline rush. Invesco’s main competitor is the HANetf Solar Energy ETF.
Invesco ETF main holdings
|11.415||Enphase Energy Inc|
|10.994||SolarEdge Technologies Inc|
|7.327||Xinyi Solar Holdings Ltd|
|6.576||First Solar Inc|
|3.249||Daqo New Energy Corp ADR|
|2.781||Shoals Technologies Group Inc|
|2.763||GCL-Poly Energy Holdings Ltd|
|2.65||Atlantica Sustainable Infrastructure PLC|
|2.543||Hannon Armstrong Sustainable Infrastructure Capital Inc|
Invesco ETF details
|Invesco Solar Energy UCITS ETF|
|Bloomberg ticker||ISUN LN|
|Base / Trading currency||USD / USD|
|Ongoing charge (p.a.)||0.69%|