Small Cap Value Report (Mon 11 Sept 2023) - RTN, SPO, VTY, INSE, EXR, WAND, MPE

11th Sep '23 by Paul Scott

95 comments 8483 reads

Good morning from Paul & Graham!

We're still having remarkably hot weather in the UK. As Father Ted once said during a September heatwave, "If it stays this warm throughout the whole of the winter, we won't need to turn on the heating at all!" (shortly after he had blown the entire year's heating allowance betting on the wrong sheep). Sometimes my portfolio feels like I've bet on the wrong sheep too, so remarkable parallels there.

Mello Monday 5pm today - is this evening, great to see these interesting investor shows back after a summer break. I’m looking forward to hearing highly experienced fund manager Rosemary Banyard interviewed, she talks a lot of sense, and kicks off the show at 17:00. Also the BASH session is always good. Do support these events, as the danger is in a bear market, investor apathy might mean they wither away.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £1bn. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green (thumbs up) - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced.

Amber - means we don't have a…

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af20001

11th Sep '23

I was reading recently about the 10-15 year wait for any new renewables projects to get connected to the National Grid. That's obviously a major problem if you want to ramp up renewables deployment!

Once that sinks in for any new incumbent government I'm sure any plans to halt new Oil/Gas investment will go by the wayside, or they'll fudge the windfall tax somehow.

Add in the amount of extra electricity capacity required when (if?) lots of heat pumps get installed, and you soon start to realise there is no way they can shut off gas production any time soon.

It's one thing to install enough renewable capacity to replace the existing gas/coal/oil generation, but it's a completely different ballgame to double or treble the grid's output that will be required to power millions of heat pumps/electric boilers/EVs.

So in short, I can't see any way of Gas production not needing to increase for the next few decades.

The Ox 2906

I was thinking something similar, a country that has defaulted on sovereign debt 9 or so times is hardly likely to cough up to some British company with a gripe, unless the Malvinas are part of the deal!

Andy Howe

Hi Matt,

I also hold Serica Energy (LON:SQZ). Personally I'm keeping hold for now for a number of reasons -

its a great company, very well run with lots of cash.

seem to increase their oil assets despite extraction, owing to extremely efficient extraction, they seem to find more.

oil price is currently on the up owing to Saudi and Russia extending their cuts, and according to the FT should reach $100 per barrel before the end of the year.

maybe maybe this government will review the Windfall tax before the next election. There were comments they were review it.

Serica may well announce international opportunities. Their CEO answered positively when I asked the question on the last results webinar.

and while we wait, a very nice divi yield of over 7%

Cheers Andy

ed_miller

Re: Use of Fossil Fuels

A few weeks ago I saw a tweet that noted that the UK had just two remaining coal-fired power stations for occasional baseload top-up during peak demand e.g. in midwinter. At the time, China had 1132 coal-fired power stations and they build the equivalent of 2 per week (106 in 2022). I'll refrain from the long political rant I could launch into about the insanity of UK energy policy (to the extent there is one) and just point out that continuing to buy all our manufactured goods from China is not commensurate with the UK's Net-Zero policy, if not its actual committed targets. Surely, sense will catch up with policy to some extent and when it does there must be an investment impact on China, no? Have we not already seen 'Peak China' or very nearly?

planetx

No problem currently

In descending

Full positions

Equals (top sliced 10% recently )

Avingtans

Vertu (top sliced 5% recently )

Hargreaves

2/3 positions

Colefax (top sliced 10% last well

Holders technology

Georgia capital

Bloomsbury

1/2 positions

Filtronic

Trifast

Wynnstay

1/3 positions

Bank of Georgia

Croma

Sanderson

Small but building on drops

palace capital

AA4

Tiny can’t be bothered to sell

AstraZeneca

sold out all the minor holdings last few weeks for head Soace and a big position in Titon because I needed cash for other stuff (speculative high risk but fun )

davidjhill

I hold DX (Group) (LON:DX.) prospective bid looks ok but nothing special. The fact that they’ve tried multiple times at lower prices indicates to me that a firm bid is quite likely now. As the cat is out of the bag in terms of price acceptability there is also a potential for others to get involved. It’s all cash too so that helps.

I’m happy to hold here. If a bid isn’t forthcoming I can see them at this level in the next few months anyway given momentum but I guess I can recycle the money if they are taken out around 50p level given some of the Uk bargains on offer right now.

Tommy

Many thanks for the detailed response .

I’m not averse to risk as I have a good chunk of investment in other areas (forestry) that is so bloody boring but it is true money does grow on trees albeit very slowly, and less so if the deer and weevils destroy them .

I don’t think having a broad spread with low % holdings in this market is a good idea as you are designed to track the market, probably better in a low cost tracker ?

I was very fortunate (though actually it wasn’t luck as I knew the company very well) to have 25% of my portfolio in Crestchic and later 5% in Sureserve so 2 bids have put me on good footing .

Bank of Georgia I did have a big holding in but I bailed out too soon .

The big loser I had was national world and I underestimated what a self serving ego driven leader can do to destroy shareholder value whilst vastly filling his boots so that’s David Montgomery off my Christmas card list .

I think all those I’m holding are ok especially Georgia capital and Filtronic .

Most are all near their highs .

The problem stock is Holders which is totally illiquid and I want them to take private and stop the charade of being listed .

I have enough firepower to buy one more full position but think I’ll sit back a bit and have a think .

Yes it’s utterly crackpot that Labour (who claim that Conservatives should have done more to reduce the nations energy costs) think that by banning new licenses in the North Sea peoples heating costs can go down or become more manageable! Let alone impact on corporate Britain. I mean it’s actually moronic if they genuinely think they can push that through without implications. But I suspect they don’t really mean it - they just want a hammer to attack a conservative govt whilst it’s down.There are too many jobs at risk for a start.

What we really need is a proper transition plan - one that incentivises the use of lowest carbon and thereby incentivises capex to be diverted to oil and gas projects that contribute the cleanest whilst at the same time increasing the use of clean energy and dynamically pricing it below the marginal unit cost of fossil based energy to attract increasing investment.

That way you avoid energy price shocks that tip consumers towards the lowest cost fuel irrespective of climate implications and keep your reserves and energy independence.

Samsgrandad

Entertaining film about McDonald's origins on Netflix. Called The Founder

syrio

Why would you believe Plexus Holdings who obviously have an interest in the North Sea gas industry?

illiswilgig

I step into the N. Sea debate with considerable trepidation.

But before I do - let me thank all contributors for a very civil and insightful discussion. Quite rare - and not easy to achieve when GHG emissions are mentioned! Well done all.

It seems that there is some quite contradictory data on N.Sea emissions?

“What they conveniently leave out is UK gas is in the bottom half of the global league table for overall cleanliness and it is twice as polluting as gas from Norway which is where we get the vast majority of our imports.

and also

the N.Sea generally has high standards

So is it possible for both statement to be more correct than false?

Yes I think it is. But let me get S&P Global - commodity insights - to explain far better than I can, as they've just been studying it:

The average GHG intensity of production in the UK and Norwegian areas of the North Sea was 12 kilograms of carbon dioxide equivalent per barrel of oil equivalent (kgCO₂e/boe) in 2021. A deeper analysis revealed that nearly 2/3 of total production was found to have an intensity below that basin-wide average. Meanwhile, assets responsible for just 20 percent of total production generated half of the basin's total GHG emissions.

Overall, individual assets across the basin displayed a wide variability, ranging in GHG intensity from less than 1 kgCO₂e/boe to nearly 150 kgCO₂e/boe. Such a wide range is consistent across all the regions that have been explored to date and highlights the challenges of averages, the report finds.

So a lot is going to depend upon whether we are considering the 20% of assets that account for half the N.Sea basin emissions or the 80% that are below average? Here's more from S&P

The S&P Global Commodity Insights analysis compared production in the United Kingdom and Norwegian areas of the North Sea to illustrate the influence of these factors.

The analysis found that, on average, UK production in the North Sea was nearly 3 times more GHG intensive (23 kgCO₂e/boe) than Norwegian production (8 kgCO₂e/boe).

Norwegian operations were advantaged on a GHG intensity basis as, on average, fields tended to be less mature and with a greater share of output from larger, more productive, and technologically advanced operations. Additionally, Norway benefited from electrification projects that tie back to Norway's relatively low-emission, hydro-dominated power grid.

By comparison, UK North Sea output tended to come from smaller, more mature or more geologically challenging fields, as well as from fields with older infrastructure and technology. These factors resulted in lower productivity and thus higher GHG intensity, the analysis finds. UK operations also had wider use of flaring—flaring and venting accounted for 28% of total UK North Sea emissions compared to 9% for Norway—and, unlike Norway, did not benefit from electrification projects to offset emissions from fuel combustion.

Here's the link to the S&P release: https://www.spglobal.com/commo...

To my mind that does seem to resolve some of the apparent contradictions between differing statements on GHG emissions from the N. Sea basin?

While I am carefully sitting on the fence it does occur to me - that this only addresses the past. I have no idea what the GHG emissions of the proposed new fields are likely to be? Perhaps the UK could licence new fields that significantly exceed the basin average if something can be done to reduce/remove the 20% worst offenders at the same time? and overall meet the UK's GHG emission commitments? Just sayin'?

All very interesting, but I suspect that the answer will be political rather than optimised with our two party contenders in opposing corners of the ring as usual?

In any case there are many years of N.Sea production ahead from the current fields - so I find the Plexus Holdings (LON:POS) technology to be very interesting. Well done Paul on spotting this and seizing the moment. I was too slow. I'd seen the company, put it down for some research and as usual, forgot about it! Now keeping a beady eye on it.

cheers

Mark

The Phoenix

Minder on the orient express christmas special on youtube Wolfie will help while a few hours away.

DavidMcCabe

Thanks illiswilgig for the contribution, is interesting to see the difference in emissions between different field.

However production emissions are dwarfed by the GHG emissions produced by actually burning the natural gas of 320 kg CO2 per boe.

That is what we really need to focus on and how we get fossil fuel use down as fast as practically possible, even if it is expensive the short run. David

john2

Paul has pointed out that transporting LNG from wherever it is produced in the world is a source of greenhouse gases. It also needs to be said that liquidising (the L in LNG) the gas requires a substantial amount of electricity, as does converting it back from liquid form to a gas in the UK.

timarr

The problem is that the vast majority of GHGs are released by burning the gas not by producing or transporting it - the difference in production / transportation costs means the actual difference is about 10%.

If we want to reduce GHG emissions we need to use less gas, period, it doesn't matter where it comes from.

timarr

Wolf of Small Street

Thanks Phoenix, you know me too well. :-)

I've been working through the avengers episodes from the 60's with Diana Rigg and also Alfred Hitchcock Presents . Way before my time but absolutely loved them.

SaarfLondon

definitely was in March LOL !

raggedtp

12th Sep '23

It might betoo late for you to see this, but yes, I am a TENT holder on a "too deep a discount to NAV" basis, with a high yield. (Also trying to helpful stuff in the world.) Half my rather diversified portfolio is this. If only I had more time, I might set up an IT forum. I like to sleep nights, and there are a good few out there like Triple Point Energy Transition (LON:TENT) .

Zipmanpeter

It's interesting to see what National Grid say about this. They do NOT see any major issues with raw energy generation, including a nearly all renewables generation plan, because change is going happen over 10-15 year period so we don't need the capacity for heat pumps, EVs etc now. (In fact, the complete absence of a coherent plan for getting a heat pump supply chain going and to a lesser extent EVs means we are likely to be behind plan in transition, and behind most other developed countries which will be a competitive disadvantage).

In my previous comment I pointed to the opportunities for efficiency and demand shifting (with AND without batteries through simple pricing/market rule changes). These are relatively easy to fix with a govt of any colour.

The real problem is in the distribution of electrical power - sub- is stations, powerlines and real micro-connection issues. Fortunately this too is largely administrative (similar to allowing more low cost onshore wind) and therefore fixable within the 10-15 horizon that this needs planning on - far longer than most stock investment sites like this worry upon.

However, the balance sheet 'assets' of gas field licences and power plants should be considered carefully as they are always at risk of aggressive govt action and the political support that oil&gas lobbying can buy will likely weaken as the impact of climate change becomes more visible. In reverse, the industrial lobbying power of the renewables companies is building as they grow in scale and clout and they have more popular support - wait until the next pricing reform.

I hold Shell for instance but now as a trade vs a long term 'forever' hold as it was 20 years ago.

However, as ever, no one 'knows' and only time will tell.

Mark Carter

The board addressed some interesting questions today.

They seemed quite comfortable with the government and don't expect Indonesia to do a crazy.

They also state that they've seen no significant changes in rainfall, so are not concerned about climate change fears.

The also seemed fairly happy about current oil prices. MPE is earning good ROCE at the moment, and they are not expecting serious declines.

West Africa is entering the palm oil market, but the board wasn't concerned.

You can never predict the future of course, but things seem to be doing OK.

Small Cap Value Report (Mon 11 Sept 2023) - RTN, SPO, VTY, INSE, EXR, WAND, MPE

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Paul Scott

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