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I tendered all my holding for the buyback at £10.50, got scaled back to 54% which is better than the initial offer of around 36%. Pretty happy to get out with > half my holding at this price, having bought in under £5. Letting the others revalue towards £10 and then run this to see if the green energy recovery boosts the unlisted holdings over the next couple of years..
Many thanks PekingDuck! Much appreciated!
December, Crescent Point Energy finalised its acquisition of
Hammerhead, which resulted in a $175m distribution to REL and the receipt of 8m shares
of Crescent Point Energy (CPG). In addition, Onyx's valuation also increased from 3.00x
to 3.20x Gross MOIC. However, the decarbonisation portfolio dropped 22.9% in value,
driven primarily by its position in Enviva, which lost 85.4% of its market value due to
missed earnings targets, plant-level operational disruption, and ongoing restructuring. In
addition, FreeWire lost 75% of its value due to reduced growth projections as the
company works to preserve cash in a challenging fundraising and growth environment
for EV-related businesses. With the exception of Infinitum, the remainder of the
decarbonisation portfolio continued to suffer from fundraising headwinds caused by the
impact of rates and lower risk appetite from investors. RSE says that these businesses will
remain susceptible to market volatility until they reach profitability.
Having updated our model, our live NAVe falls by 1.2% from $15.76ps/1248pps to
$15.57ps/1233pps, down 2.5% since 31/12/23, reflecting overall weakness in the listed
holdings, with a notable 57% fall in Tritium, 48% in Enviva and 10% in Crescent Point.
RSE continues to show its commitment to capital returns, with its announcement today
to return $200m via a tender at a 16% discount to the 31/12/23 NAV. The tender price is
fixed at 1050pps, a 31% premium to last night’s close and a 16.4% premium to the current
price. If approved by shareholders, this would lead to an estimated uplift of around 8.7%
to our live NAV. The potential impact of the remaining buyback capacity would be to add
around 1.7% to NAV in the absence of the tender. But it becomes more powerful if
deployed post tender as the £22m would buy back a larger proportion of the remaining
shares at potentially a bigger discount to NAV (we argue that post returns of capital the
headline discount should widen to reflect the smaller amount of cash on the balance sheet,
with the price constant, and the NAV enhanced). At current prices the combined impact
would ab an estimated overall 12% NAV per share increase. The price has responded well
to the tender news, and is up 13.5% to 908pps (@9.30). This implies a headline discount
of 26.3% to our live NAVe. But stripping out cash and listed this is a 106% discount to
the remaining unlisted holdings (this is the metric to focus on in our view, and should
remain constant before and after any capital returns). This remains very good value in our
view and thus overall we remain Overweight
Exert from recent JPM note on results/tender offer:
RSE is proposing to return $200m (£158m) of its excess capital to shareholders via a tender offer at a fixed price of 1050pp,
a premium of 31% to the closing market price of 800pps on 7/2/24, and a 16% discount
to the 31/12/23 NAV announced today of 1253pps (see below). RSE expects to launch
the tender before the end of this month, closing during March. The number of shares
purchased is expected to represent ~36% of RSE’s existing ordinary shares then in issue
(excluding any shares held in treasury). The tender requires shareholder approval at an
EGM, which is anticipated will be held in March, and will be subject to other legal,
regulatory and customary conditions. Since the announcement on 23/5/23 of the
authorised increase of £30m for the share buyback programme through to
31/12/23,126,023 ordinary shares have been bought back at a total cost of £18m ($22m)
at an average share price of 567p/$7.13. As of 31/12/23, £22m was available for
repurchase. In addition, pursuant to changes to the IMA announced on 3 January 2020,
the manager agreed for RSE to be required to repurchase shares or pay dividends equal
to 20% of net gains on dispositions. No further carried interest will be payable until the
$85m of realised and unrealised losses to date at 31/12/23 are made whole with future
gains.
Portfolio performance for the last quarter of 2023 remained essentially flat with positive
performance from the conventional energy portfolio offset by lagging results from the
decarbonisation investments. Growth stage (pre-profitability) energy transition and
decarbonisation investments continue to lag broader markets, and still face adversity as
the viability of their business plans remain in question due to a dampening of investor
appetite in the face of higher interest rates. RSE points out that a lower risk appetite
presents a substantial risk for these businesses as they are at a stage in their growth that
relies disproportionately on funding from private equity, corporate balance sheets and
institutional investors, and that RSE’s decarbonisation investments are not immune from
these headwinds. On the energy commodity front, WTI crude prices were down 6.5% in
2023 and 20.8% in 4Q, with Brent Crude down 6.2% in 2023 and 19.2% in 4Q. Henry
Hub natural gas spot prices were down 29.1% in 2023 and 3.7% in 4Q. Consolidation in
the US oil and gas sector has reached levels not seen in a long time with over $250bn in
acquisitions announced in 2023. The Permian basin featured prominently in this deal
activity and reflects the acquirers' strong balance sheets due to the sector's commitment
to cash-flow-generation.
Against this backdrop, RSE's conventional energy portfolio gained 7.6% in value over
4Q, driven largely by Crescent Point Energy's (previously Hammerhead Energy) 21.1 %
improvement in share price, countering slight weakness in Permian
Many thanks, tichtich.
Still questions remain on the mechanism here, but I guess that'll become clear in the near future.
Best wishes!
Thank you TT, very helpful & makes sense to me. Like CYB I struggled to understand the RNS.
PekingDuck any chance you have the JPM commentary again & could share please?
I'm not an expert, so take this with a pinch of salt, but as I understand it.... RSE will buy back about 36% of its shares at £10.50 each, by means of a tender offer. That means it will buy them directly from shareholders, not on the open market.
Since that price is well above the current market price, I imagine that nearly all shareholders will want to take up that offer, so it will likely be oversubscribed and shareholders won't get to sell as many shares as they would like. RSE hasn't said how an oversubscription will be handled, and I don't know what the normal practice is. Maybe each shareholder will get to sell about a third of their shares through the tender offer.
Once the tender is done I would expect the market price of shares to go down, a bit like going ex-dividend.
Since I don't want to hold RSE for the long term, I decided to sell my shares today, for about 920p, and take my profit that way. I don't know whether this will work out better than waiting for the tender. But I have my eye on other shares I can buy with the money.
...the Tender Offer RNS.
Can anyone please explain it in plain English rather than the RNS gobbledegook?
Thanks.
JPM view on Hammerhead deal + what follows:
Taking the combined cash and Crescent Point equity proceeds of
$11.26 and $4.00 per share respectively implies a combined price of $15.26 per share that
is a 4.3% uplift to yesterday’s US NASDAQ closing price for Hammerhead. Most of the
24% uplift captured vs the 30/9/23 that is mentioned in the RSE statement reflects the
increase in the Hammerhead NASDAQ share price that was up 22.6% from the 30/9/23
close to 6/11/23 close. We estimate that exchanging for the cash and Crescent Point shares
results in a 1.5% uplift to our live RSE NAVe from $16.31/1,327p per share to
$16.55/1,347p per share. But while the uplift to the live NAV is relatively small, this is
a strong result for RSE, in our view.
Hammerhead listed via a SPAC combination transaction that completed earlier this year and Bloomberg Finance L.P. says Riverstone Holdings LLC owned 81.6% of the overall Hammerhead shares. In this context we think
capturing an uplift to yesterday’s close and monetising the Hammerhead holding far
quicker than we expected is an excellent result for RSE overall.
RSE shares have re-rated this morning to 700pps (@10:00) at the time of writing, up 9.2% from yesterday’s close.
We think this largely reflects the potential for an expected return of cash to shareholders
as mentioned at the end of RSE’s statement. At the current share price we estimate RSE
trades at a headline discount to NAV of 48.0%, but deducting for the listed holdings and
net cash (now 72% of NAV combined, pro-forma for the Hammerhead disposal) this still
implies a 170% discount on the remaining unlisted assets.
This calculation becomes a bit less meaningful with such a high proportion of NAV in cash and listed securities but suggests RSE still represents good value at the current share price. If cash is returned at
a price close to NAV then shareholders could effectively realise some of the discount to
NAV and this may occur as soon as early 2024 if the Hammerhead disposal completes in
December 2023. We are Overweight
Hi. I only came across this stock last week. I was having difficulty confirming saintsforever's NAV estimate of £14, until I realised I wasn't looking at the latest update. Once confirmed, it looks like a great opportunity, so I've taken the plunge. Thanks, saints, your comment was helpful.
I recently bought another stock at over 40% discount to NAV, and the price has already risen 25%. I don't suppose RSE will go up so quickly, but maybe, if and when the Hammerhead sale goes ahead. On the other hand, I'm half expecting a general downturn once the dreams of a Fed/BOE pivot fade (which may have started today).
Given their comments on the RNS confirming the sale, strong likelihood that it will involve a significant return of cash to shareholders, esp given that committed funding to existing investments is only c. $6m..?
As of 30 September 2023, REL's published cash balance was US$127 million. Following the expected completion of the Hammerhead transaction in late December 2023, approximately 43% of REL's net asset value is expected to consist of cash. REL is currently exploring the most efficient means of returning its excess capital to shareholders (while also taking into account the anticipated on-going requirements of its other portfolio companies) and will make a further announcement in due course.
Assuming this deal completes the current £7 share price will be effectively covered by cash leaving the other half of the £14 nav in it for free.
The bod have a nice conundrum ….. any bets on what they choose to do?
Oct 11 (Reuters) - Exxon Mobil's mega $60 billion deal for shale rival Pioneer Natural Resources could be a catalyst that will drive further consolidation in the U.S. oil and gas industry, analysts said, as they zeroed in on a handful of likely targets.
Dealmaking in the U.S. oil and gas patch has picked up pace as producers sought to replenish their inventory after years of under-investment.
The Permian Basin, the top U.S. oilfield known for its low cost of extraction, is seeing a consolidation with more than $26 billion worth of deals this year before the Exxon announcement, as per Rystad Energy data. That is more than double the entire value of deals signed in 2022 for the region.
"(The Exxon transaction) is a positive read-through to the sector overall, particularly the Permian Basin players," said Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co.
Rivals will "step up to try to compete with Exxon", Sorbara said.
Future buyers are likely to be among Exxon's closest big rivals in the Permian Basin such as Chevron and ConocoPhillips, analysts said.
"Chevron seems the most likely to respond with a transaction of its own," said Andrew Dittmar, a director at consultancy Enverus.
The most-prized targets for Chevron could be Coterra Energy or Devon Energy, he added. Chevron had $9.29 billion in cash and equivalents at the end of June.
Others mentioned included Matador Resources, Permian Resources and Diamondback Energy
Green energy is out of favour but major investment in Permian has risen strongly over last 2 days on Exxon's bid for Pioneer and events in Israel. Suspect discount to NAV is increasing.
Wave of red today. Any reason for this or just follow m' leader?
Movement at last after the Tender Offer went through. Hoping for some more growth.
Excellent posts Agricore. Thank you
"Global investment in clean energy is on course to rise to USD 1.7 trillion in 2023, with solar set to eclipse oil production for the first time"
(Source: https://www.iea.org/news/clean-energy-investment-is-extending-its-lead-over-fossil-fuels-boosted-by-energy-security-strengths)
Solid Power is also a buy on 7 analysts following and a candidate for your "must buy list"
(Source: https://www.nasdaq.com/articles/3-up-and-coming-ev-stocks-to-put-on-your-must-buy-list)
Are we starting to feel less appalled?
Finally a $13m loss on Enviva, which I've previously covered in some detail, and once again on Nasdaq a buy with 33% upside according to the 5 analysts following including Citi and JP Morgan. Again it's a recovery play but where they are guiding the market with cost reductions, EBITDA substantial growth as previously described - refer to:
(Source:https://s28.q4cdn.com/898203682/files/doc_financials/2023/q2/EVA-2Q23-Investor-Presentation-08-04-2023-updated-4pm.pdf)
If you've been paying attention I've described $83m of losses, not $58m. That's because there are other portfolio members on a >1 MOIC, like Freewire on a 2X MOIC. So gains as well as losses.
So when you say "They've repeatedly made terrible decisions." if you look at their portfolio objectively then they've also made some smart decisions too. Moreover, I've described specifically why the jury is out with most of the portfolio too.
Since green investments are typically growth by their very nature, 27% is actually much less than other growth stocks. Comparing Scottish Mortgage for example that's down, what, 50%? GROW is down 70%.
The US IRA, the European Green Deal, the Chinese dominance in most things green, UK's labour Green Prosperity Plan from 2024, the Japanese Green Plan (https://www.jdsupra.com/legalnews/japan-unveils-green-subsidy-programme-6441356/) are juggernauts totalling more than $5 trillion of subsidies and support worldwide. We are only feeling the affect of those programs from mid 2023. You have to think carefully why those juggernauts are irrelevant since Riverstone's decarbonisation portfolio is a direct beneficiary.
Politically too, people can be as dismissive as they like about green wash, but there is a ground swell of public opinion as disaster follows disaster and a political solution is demanded to combat this. This will benefit decarbonisation - this is the certain future - and investors need to smell the fumes, it's as simple as that.
Extrapolating the past to predict the future as you appear to be doing, is something which wouldn't have worked for RSE's O&G portfolio if you'd done that 2 years ago - and I believe the decarbonisation portfolio will prosper going forwards in the same way.
34adsaddsa,
Couple of throwaway sentences ... do you have anything to substantiate what you say?
The MOIC for 30/06/23 for decarbonisation is 0.73X so a 27% overall loss. Not great but not "Appalling". Ceres Power down 70%, ITM down the same, Jupiter Green down 30%, Keystone Positive Change down 40%.... so what are you comparing against?
Let's look at that 27% or $58m.
1/ A third of that loss ($20m) is Anuvia - it's dead, gone bust, bad decision, but this happens.
2/ $9m is Hyzon. Hydrogen Fuel Cells. Looking at the Nasdaq RSE bought after a pull back of 33% but caught a falling knife with hindsight. It's an early stage play but a great example of a beneficiary under the IRA. It goes into commercialisation next year. "Hyzon Motors has announced the successful completion and testing of the first nine single-stack 200kW Fuel Cell System (FCS) B samples at its production and innovation centre in Bolingbrook, Illinois. This validates Hyzon’s design, equipment and operating procedures and it is now looking to increase its rate of production. Hyzon remains on course to declare Start of Production and commercialisation of its innovative FCS in 2024."
3/ $11m Tritium. Disappointing but digging into the detail are you aware that: "Tritium announced record results for the first four months of 2023 with a new production and revenue record, a $40 million capital investment from two existing backers and an expectation it will be EBITDA positive in the first half of calendar 2024. The company raised its forward-looking growth guidance as it continues to invest to meet strong customer demand for its EV fast chargers."
Did you know that they hold 30% US market share are according to the Nasdaq "super attractive", with a "strong buy" from 5 analysts covering them:
https://www.nasdaq.com/articles/buy-alert%3A-3-ev-charging-stocks-nearing-super-attractive-entry-points
Do you find that appalling?
A $30m loss on Solid Power. That loss is shared and also backed by BMW, Ford, Samsung and is funded by the United States Department of Energy to further scale and develop its nickel- and cobalt-free cells for its Solid-State battery technology that could significantly lower the price of EV batteries. The technology is intended to produce cells that are more energy-dense as well as lighter, thinner and less volatile than lithium-ion cells.
Doesn't that sound it could be a beneficiary of the IRA? If successful will the MOIC still be 0.39x? Or many times that?
...TBC next post...
Problem is that you're not getting the cash back. They're going to pump it into net-zero stuff which probably won't go well because their track record is appalling. They've repeatedly made terrible decisions.
The share price appreciation of both Hammerhead and Permian will have added added circa $94m to NAV since the June update, whereas the share price of Riverstone has hardly moved. The discount is significantly higher than the June update. Think I’ll add!
Thanks for your thoughts on this. It is a bit vague to me also. It's early days so will see how it plays out and whether we get any more details. Will also hold for now. Thanks.
Sparky - if, as they state in the RNS, that the tender offer (if taken up - they don't mention the 'if') will be accretive to the NAV, why would you want to sell shares at a current 44% discount? especially with some decent performance from the traditional energy companies since the end June NAV date?
Using a large part of their cash holdings to do this suggests the investment managers don't have line of sight on good new investment ideas for the portfolio? Or is this part 1 of a staged, gradual wind down of the whole portfolio and return of cash in full to shareholders. The RNS isn't clear on either point to me. I'm holding though..