So with the company paying out 21p a share this year alone, you should all be in profit and still have paper worth 17.5p a share. In fact, some of you will have doubled your money. The key point here is that anyone reinvesting the previous distribution in January into Trading Emissions' shares has done incredibly well. There is little reason to think things will be differently this time. That's because, if my sum-of-the-parts valuations prove on the ball, there should be further share price upside.
Assessing upside potential
By my calculations, Trading Emissions had a pro-forma net asset value of 52p a share at the end of March after factoring in the aforementioned 6p-a-share capital return. Book value consisted of a carbon credit portfolio with a negative liability of £14m, or 5.6p a share; a private equity portfolio worth £105m, or 42p a share; and net cash of £39m, or 15.6p a share. However, in April the cash sum was bolstered following the drawdown of a €31m (£26.5m) loan by Trading Emissions' wholly-owned subsidiaries, TEP Solar Holdings and Solar Energy Italia. Of this sum, at least €26m was passed on to Trading Emissions. In other words, after the payment of 15p a share this week, the company's cash pile could potentially be around 9p a share.
This means Trading Emissions' share price of 17.5p is trading at a hefty 53 per cent discount to pro-forma book value of around 37p, of which around 9p could be in cash. That discount is way too deep given the scope for additional capital returns, especially as the company is actively looking to dispose of its portfolio of carbon and private equity investments. In my opinion, fair value is far nearer 25p a share, which would represent a share price discount to net asset value of 33 per cent.
Trading on a bid-offer spread of 16.75p to 17.5p, and offering over 40 per cent share price upside to my fair value estimate, I rate Trading Emissions' shares a deep value buy ahead of full-year results at the end of October. Frankly, if the company continues to make progress with its asset sales, I would not be surprised at all if it announces yet another distribution to shareholders at the time of those results
The reason its dropped is the ex dividend date is today. share pricing ex div is an interesting topic, and is a matter of art and science. Shares can drop more or less than the div amount, however in a totally efficient market with all information about the company known, it should drop by the same. With Trading Emissions, their net asst value post dividend is still about 40p a share, so they are trading a discount.
Put it another way, you could buy the company at todays price of 19pence and dispose of it's assets, and make a 20pence profit per share. even in a fire sale, quick deal situation you could make 10pence a share profit.
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