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Any comments on the tender offer released today?
While a disappointing update it is interesting to examine the offenders. Are these "hopeless investments" by a hapless RSE - or something else?
Write downs at:
1. Anuvia - dead - nothing really to comment on. Move on.
2. Enuvia Biomass. It's worth looking at the scale of this business. Presumably Drax source from them powering the 5%-6% of UK power biomass. Their ability to replace metallurgical coal is particularly interesting as well as base power capability from converted coal power stations. Investor Presentation targeting margins to grow from $8MT (Q2) to $31-36/MT by Q4. If they can achieve that we may see the write down reversed?
(Source: https://s28.q4cdn.com/898203682/files/doc_financials/2023/q2/EVA-2Q23-Investor-Presentation-08-04-2023-updated-4pm.pdf)
3. Goodleap - loans impacted due to higher cost of capital - when you look at their range of improvement loans alongside higher energy costs and the IRA helping drive the cost of US solutions down (via tax credits) then I see reasons for optimism. A Forbes FinTech top 10
"GoodLeap is a marketplace for sustainable home upgrades including solar panel systems, energy-efficient windows, smart thermostats or HVAC systems. The company offers point-of-sale financing solutions in an effort to make environmentally-friendly home upgrades more accessible. GoodLeap has provided more than $20 billion in financing to about 700,000 homeowners, up from $13 billion disbursed to 380,000 homeowners one year ago.
Cofounders: Chair and CEO Hayes Barnard, 51, and Chief Revenue Officer Matt Dawson, 49, two longtime executives at SolarCity (now Tesla Energy); and Chief Risk Officer Jason Walker, 49, a veteran mortgage broker."
https://goodleap.com/homeowners/
https://goodleap.com/about-us/ (Backed by Edward Norton and Shailene Woodley)
https://www.forbes.com/sites/emilymason/2023/06/06/the-10-biggest-fintech-companies-in-america-2023/
Not a write down but one I've had my eye on steadily going up in price for some months.
Hammerhead - doubled from lows - its investor presentation suggests 30 years inventory from its assets:
Investor presentation: https://ir.hhres.com/static-files/e463159c-5a38-41eb-8178-7685d6a4991d
Conclusion: A lot of detail to chew through and still more to go. But despite a step back there appears to be grounds for optimism and there remains a substantial discount to NAV insulating investors, and tailwinds why their portfolio should do well going forwards.
Hammerhead now trading c$13.75 up 40%. This is one of RSE’s public holdings
Hammerhead announce a positive Q2 albeit with lower short term profits https://www.hhres.com/wp-content/uploads/2023/08/2023-08-Hammerhead-Corporate-Presentation_vF.pdf
Everything else being equal, the writedown of Anuvia would reduce
our live NAVe by 2.3% or $14.0m from $620m to $606m or from $12.63 to $12.34 per
share. But today we are also making another change to our NAV to remove our
performance fee accrual. RSE pays its GP a performance fee of 20% of gross realised
profits subject to it meeting a portfolio level cost benchmark, which, at 31/12/22, was in
deficit by $95m. Footnotes in the quarterly NAV statements indicate the size of the
potential accrued fee which is not accrued until the portfolio cost level benchmark is met.
Our live NAVe includes our estimate of the potential performance fees, which today is
$29.8m, but, with RSE now significantly further away from the cost level benchmark test,
we are now removing that performance fee accrual from our live NAV. After adding back
the $29.8m, we were including for the performance fee accrual, our live NAV would be
$12.95 per share or 1,003pps. But we are also updating to include the latest share
buybacks for the period since 31/3/23, which results in our live NAVe increasing by a
further 33 cents to $13.28ps/1030pps (ie including the Anuvia writedown, buybacks and
the removal of our performance fee accrual). So despite the bad news, our live NAVe is
actually up overall by 5.1% as a result of our overall changes. Our 30/6/23 NAVe on the
same basis would be $12.98ps/1,022pps.
• Based on the current share price of 530p (@09:00), the headline discount to our live NAVe
is 48.6% but deducting net cash and the listed holdings at NAV, the implied discount on
the remaining unlisted assets is 123%. This is one of the widest discounts for any listed
private equity company we cover. While the Anuvia writedown is disappointing news for
RSE shareholders and a set back for RSE in its strategic transition towards
decarbonisation investments, a >100% implied discount on the unlisted assets implies the
market already applies no value to those investments at the current share price. We are
Overweight.
Today's (27th July) share price is slightly lower than May (Market Cap dropped from £275m to £249m):
As of today there are 46,254,554 shares in issue.
The update shows each share of RSE @ £5.40 (Q1 £5.70) is worth the following (as at 30/06/23): £10.14 (Q1 £10.97)
There's £3.68/share of publicly traded Oil/Gas holdings (Q1 £3.72)
There's £2.23/share of Cash (Q1 £2.10)
There's £0.69/share of publicly traded Decarbonisation holdings (Q1 £0.96)
So £6.60/share worth of liquid/tradeable holdings and cash...... (Q1 £6.74).
Plus a free carry on £10.14-£6.60 = £3.54/share worth of listed/unlisted decarb/ plus unlisted O&G (Q1 £5.19)
So you get £1.20/share back from liquifying all listed holdings plus £3.54/share worth of unlisted O&G/Decarbonisation.
i.e. Unlisted holdings of O&G are £1.64/share (Q1 £1.92) and unlisted holdings of decarbonisation is £1.86 (Q1 £2.23) a share.
The IRA remains a huge tailwind for the £2.55/share (Q1 £3.19) decarbonisation portfolio. The tax/subsidy benefits of IRA will begin to appear in 2023. Also of note in the commentary "Global investment in the energy transition totaled $1.11 trillion in 2022, a 31 per cent. increase in transition investment over 2021".
Meanwhile further buy backs of £29m will also be accretive. Assuming an average buyback of £5.40, equates to 5.37m shares for cancellation (@£5.40/share) dropping the shares in issue by end of 2023 to 40.88m. This equates ceteris paribus to a NAV per share of £11.47 (+£1.33)
So a 53% discount to NAV.
But if you think if reasonable that the decarbonisation portfolio could bounce (2x) from here due to IRA and the various measures due to a growing climate crisis and that the discount to NAV reduces to 20% over time then the upside is exciting.
£10.14 NAV/share+£2.55 decarb upside+£1.33 buy backs = £14.02/share @ 20% discount = £11.22/share
So future "fair value" is over double today's £5.40 share price. That assumes no appreciation on O&G where there's reasons why that might be too pessimistic. For example Hammerhead have made progress yet the share price has been punished compared to peers. Meanwhile most holdings have 30%-40% hedging so even if the oil market drops dramatically later this year (as I write Brent is comfortably back above $80) there's actually quite a bit of downside protection via the hedging.
GLA
Peking
>>>Hugely disappointing ytd return
Really? Anuvia had been marked down 30% as at Q1 2023 so accounted for 2.1% of NAV or 1% of the share price. Is 1% hugely disappointing? If you can keep it in perspective this failure, whilst unwelcome, is hardly catastrophic - and the 6% drop in share price since Q1 update is an over reaction, especially when you further consider the accretive buy backs actually more than offset this loss.
If you look at the co-investors in Anuvia there was plenty of smart money participating in the series D round of Anuvia. It achived $25m of sales in 2022 but went back to the market in Q1 2023 for a series E round.... no dice. Most fertiliser plays have done terribly in 2023 e.g. Emmerson down 60% YTD, or giant CF in the US down 12%. One might think fertiliser to be a buoyant area for investment in a world where Russia and Ukraine are at war and climate change wreaks havoc.... but seemingly not, or not yet.
Given the strong macro tailwinds behind RSE's investments, the continuing need for energy security, and in 2023 we start to see the impact of the IRA, I'd be very surprised if the Board are under pressure to wind this up. I look forward to the H1 update.
Hugely disappointing ytd return for the share price, and to write down an investment to zero 15 months after making it? Questions the due diligence that's been done prior to this. Board must be coming under increasing pressure to wind this up and return cash to shareholders.
As a holder of both IX and RSE, today's news of a £10m upround with BP participating caused IX to rise by 110% (settling at +90% at close). The announcement caused the NAV to more than double (so even at a +90% share price its discount to NAV this evening is greater than it was 24 hours away before its announcement. The types of holdings in IX are not dissimilar to the decarbonisation holdings here. It's tangible proof of the hidden value due to the US's IRA (inflation reduction act) creating vast opportunities for decarbonisation opps.
Yet RSE is about 10% down in the past 6 months despite substantial buybacks and increases to NAV.
4.108m shares repurchased & cancelled in H1 of the year, just over 8% of the shares in circulation at 31/12/22.
Heading in the right direction now with more net buyers.
Mr Flibbles, thanks I wasn't aware of that forum. It looks good.
Post £40m of buy backs NAV drops to $615m but the shares in issue drop to 42.1m.
This would equate to a $1.01/share or 85p/share uplift in NAV. ($667m to $615m NAV and 49m to 42.1m shares in issue)
This assumes no change or improvement (or loss) otherwise to the NAV.
Each share of RSE @ £5.70 is worth the following (as at 31/03/23):
There's £1.52/share of Cash
There's £4.31/share of publicly traded Oil/Gas holdings
There's £1.13/share of publicly traded Decarbonisation holdings
Or £6.96/share of liquid assets ... cash plus public/liquid O&G/decarbonisation holdings. So you get £1.26/share back on top of your £5.70 purchase, from liquifying all listed holdings plus cash ..... get a free carry on £4.88/share worth of unlisted O&G/Decarbonisation shares.
Further £30m of buybacks being proposed at next weeks AGM, in addition to £11m outstanding from current program. Float is shrinking fast here.
Agricore, please could you consider joining the Citywire Wire Forum. It is free and full on well-researched individuals who will actually read your post. There is a dedicated listed private equity thread as well as a dedicated RSE thread.
https://moneyforums.citywire.com/
Today's (5th May) share price is slightly lower than May (Market Cap dropped from £280m to £275m) so about 2%. But ignoring that. But to put this in perspective....
The update shows each share of RSE @ £5.70 is worth the following (as at 31/03/23):
There's £3.68/share of publicly traded Oil/Gas holdings
There's £2.10/share of Cash
There's £0.96/share of publicly traded Decarbonisation holdings
So £5.78/share worth of liquid O&G holdings and cash...... (So a free carry on £5.19 a share worth of listed/unlisted decarb/ plus unlisted O&G
Or £6.74/share including liquid decarbonisation holdings. (So you get almost £1/share back from liquifying all listed holdings plus £4.23/share worth of unlisted O&G/Decarbonisation.
i.e. Unlisted holdings of O&G are £1.92/share and unlisted holdings of decarbonisation is £2.23 a share.
The IRA is a huge tailwind for the £3.19/share decarbonisation portfolio. The tax/subsidy benefits of IRA will begin to appear in 2023. Also of note in the commentary "Global investment in the energy transition totaled $1.11 trillion in 2022, a 31 per cent. increase in transition investment over 2021".
Meanwhile a further buy back of ~£10m will also be accretive. Assuming an average of £5.70 equates to 1.75m shares for cancellation dropping the shares in issue by end of 2023 to 47.35m. This equates to an £0.18/share increase. (So for every share you buy and liquid portfolio you get paid £1.18/share from liquifying all listed holdings plus £4.23/share worth of unlisted O&G/Decarbonisation for free.
All the above is baked in the price.
But if you think if reasonable that the decarbonisation portfolio could double and that the discount reduces to 20% then the upside is exciting.
But if you think if reasonable that the decarbonisation portfolio could double and that the discount reduces to 20% then the upside is exciting.
£10.97 NAV/share+£3.19 decarb upside+£0.18 buy backs = £14.34/share = £11.47/share
So future "fair value" is almost exactly double today's share price. That assumes no appreciation on O&G where there's reasons why that might be too pessimistic. For example Hammerhead have made progress yet the share price has been punished compared to peers. Meanwhile most holidngs have 30%-40% hedging so even if the oil market drops dramatically later this year (which I doubt) there's actually quite a bit of downside protection via the hedging.
GLA
Thanks Tobin. Shame there is no video link and not in London. As PI with a full-time job with "only" £20K in this I really can't justify a trip to Guernsey. Hopefully, we can move up from that £12m trade reported socking up the massive buys earlier last week.
AGM announced but no more buy backs.
Is there a pause in buybacks? No RNS.
You'll all no doubt remember how Ed Bramson muscled into Electra Investment Trust because he'd divined unrealised value. Having got control he realised all the assets and all was distributed to shareholders.....at full value. Short of the winding up of RSE an Ed Bramson .....or Warren Buffett type buying into and gaining control of RSE with a view to value realisation is another possible scenario. There's a ruddy big moat around RSE. It'd be a fine castle to own or control, especially if the castle is worth double or treble what Rightmove says!! I bought a big chunk today. Not enough for control!!!
Immense value in the unlisted investments, discount to NAV has widened further despite the ongoing and very significant buyback program. Agree that PE investments in the decarbonizing space have been hit massively this year so far, just look at AMTX as an example of a listed but unprofitable company with a great runway of projects and revenue plans for the next 5 years, with offtake commitments.
Some recent research comments below on RSE which highlights the yawning gap to value:
The announced 31/12/22 NAV is in line with the 31/12/22
NAV RSE previously announced via its quarterly reporting in early February
2023. There is little new information in today’s results and we previously wrote
about the 31/12/22 in this note. At the time the 31/12/22 NAV was initially
announced, we made a provisional adjustment to our live NAVe, reconciling for
the difference in our 31/12/22 estimate and the actual. Yesterday, we published
another update to our RSE model (here) to include the performance fee accrual,
which reduced our live NAV by 4.3%. Today we are making another update to
reflect (a) the additional 0.2m of HHRS shares RSE owns if the market price
exceeds $10.53, which is a condition that was met at yesterday’s HHRS close,
and this adds 0.3% to our NAVe; (b) share buybacks that have occurred post
31/12/22, adding 0.9% to our NAVe; and (c) a slightly lower performance fee
accrual, adding 0.4% to our NAVe. Overall, our new live NAV rises from
$14.29 to $14.52 and, in Sterling terms, this is 1,185pps to 1,204pps. At the
current share price of 600p (@10:00), the headline discount to NAV is 50.2%. If
we take the cash and listed holdings out at NAV, the implied discount on the
unlisted investments is now 132%. This estimate includes treating Hammerhead
as listed, which is 23.2% of NAV and now the largest single investment on a
pro-forma basis, also including the DCRD sponsor investment. We remain
Overweight.
Anything private equity is being hit due to funding concerns this week. I have added here for the long run. RSE compliments my investment in the listed space with BERI.
Most money is made in a bear period and the financial situation with lending is providing downward pressure in the alternative stocks this is an good addition for the long run. I do wounder why MIGO have not invested in RSE at these valuations.
Agricore,
could you highlight where you obtained the MOIC multiples?
PD
MOST PROFITABLE - GREEN/TRANSITION ENERGY INVESTMENTS:
Based on the Riverstone Energy Limited Annual Report 2022, here are the these are the largest MOIC (Multiple of Invested Capital) (i.e. profitable) "green" or energy transition investments:
FreeWire Technologies - MOIC of 9.8x
FreeWire Technologies is a provider of electric vehicle (EV) charging and power solutions. Riverstone Energy invested $30.2 million in the company.
Ambri - MOIC of 8.4x
Ambri is a developer of liquid metal battery technology for grid-scale energy storage. Riverstone Energy invested $31.5 million in the company.
Enyo - MOIC of 6.2x
Enyo is a developer of hydrogen fuel cell systems for the transportation sector. Riverstone Energy invested $17.5 million in the company.
24M - MOIC of 5.7x
24M is a developer of advanced lithium-ion battery technology. Riverstone Energy invested $31.5 million in the company.
Stem - MOIC of 5.1x
Stem is a provider of AI-driven energy storage systems for commercial and industrial customers. Riverstone Energy invested $42.7 million in the company.
Renewable Energy Group - MOIC of 4.7x
Renewable Energy Group is a producer of biodiesel and other renewable fuels. Riverstone Energy invested $22.5 million in the company.
Rubicon Global - MOIC of 4.5x
Rubicon Global is a provider of waste and recycling services using technology to optimize the collection and disposal process. Riverstone Energy invested $50.0 million in the company.
Demand Energy - MOIC of 4.4x
Demand Energy is a developer of energy storage systems and software for grid and behind-the-meter applications. Riverstone Energy invested $30.7 million in the company.
Silverpeak - MOIC of 3.7x
Silverpeak is a developer of renewable energy projects, including wind, solar, and energy storage. Riverstone Energy invested $28.8 million in the company.
Ceres Power - MOIC of 3.6x
Ceres Power is a developer of fuel cell technology for power generation in the residential, commercial, and transportation sectors. Riverstone Energy invested $29.4 million in the company.
I've worked through the Annual Report 2022 to work out the largest holdings. As of December 31, 2022, Riverstone Energy's largest holding was Centennial Resource Development, which accounted for 10.9% of the fund's net asset value. Centennial is an independent oil and gas company with operations in the Permian Basin, and Riverstone Energy invested $233.8 million in the company.
CNX Resources was Riverstone Energy's second-largest holding, representing 10.2% of the fund's net asset value as of December 31, 2022. CNX Resources is a natural gas exploration and production company with assets in the Appalachian Basin, and Riverstone Energy invested $263.7 million in the company.
Crestwood Equity Partners was another significant holding for Riverstone Energy, representing 7.3% of the fund's net asset value as of December 31, 2022. Crestwood is a master limited partnership that operates midstream assets in various regions, including the Bakken Shale, Powder River Basin, and Delaware Basin, and Riverstone Energy invested $191.1 million in the company.
Liberty Oilfield Services was Riverstone Energy's fourth-largest holding, accounting for 5.2% of the fund's net asset value as of December 31, 2022. Liberty is a provider of hydraulic fracturing and completions services for unconventional oil and gas development in North America, and Riverstone Energy invested $136.4 million in the company.
Altus Midstream was another midstream company in which Riverstone Energy invested, representing 4.9% of the fund's net asset value as of December 31, 2022. Altus focuses on natural gas gathering, processing, and transportation in the Permian Basin, and Riverstone Energy invested $128.3 million in the company.
Riverstone Energy's sixth-largest holding was Castex Energy, representing 4.7% of the fund's net asset value as of December 31, 2022. Castex is an exploration and production company with assets in the Gulf of Mexico, and Riverstone Energy invested $123.4 million in the company.
Mesa Royalty Trust was another significant holding for Riverstone Energy, accounting for 3.9% of the fund's net asset value as of December 31, 2022. Mesa is a trust that holds interests in various oil and gas properties in the United States, and Riverstone Energy invested $102.2 million in the trust.
Finally, Riverstone Energy's eighth-largest holding was NextDecade, representing 3.8% of the fund's net asset value as of December 31, 2022. NextDecade is a liquefied natural gas development company focused on the Rio Grande LNG project in Texas, and Riverstone Energy invested $100.3 million in the company.