The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
I am clearly not reading the right newspapers!
A really nice and interesting piece of research announced in todays rns, not sure it will have any significant impact on the sp but it does show the utility of the parsortix system.
Krusty, 'I also believe the link between the price per therm for gas generation will be broken' , there is an article in The Times today that indicates this is exactly what the Government are thinking off.(extract below).
I have reduced my (rather overweight) holding in UKW as I cannot now see the government being able to restrain themselves from some form of revenue recovery, irrespective of an impact on future investment. With government meddling, the impact on future renewable energy prices and hence nav are becoming increasingly unpredictable. As yields from bonds increase, the risk/reward for investing in infrastructure becomes less appealing.
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Michael Grubb, professor of energy and climate change at University College London, who has advised the government on a new system, said in a recent article that the present pricing mechanism was “unconscionable”.
“Households are paying for their electricity several times what it now costs to generate and transmit it from the cleanest energy sources at scale,” he said. “It’s a bit like having to pay the peak-period price for every train journey you take.”
'One model being looked at, devised by academics, is a mechanism which would aggregate long-term contracts with renewable energy generators and sell the power on to consumers. The price would mainly be set by the actual costs of generation, rather than gas-driven wholesale markets.'
Mr Bond. Pre covid US accounts for just under half of their total revenue at around £1.2b, of this 70% is attributable to school buses, so it is quite a significant contributor to income. If not running a service is a pro rata loss to provision then even without any penalties is a £84M hit.
US school buses is quite an important slice of their business and along with fuel prices it will be contributing to the slower return to margins than perhaps expected a year ago. Local authorities and schools that run their own school buses are also struggling so I guess in time the price of contracts will increase to compensate for higher driver wages/fuel prices.
The Alsa story looks good and I think that high fuel costs it will mean more passengers for coach travel across the board.
The company is moving in the right direction; the sp seems to have a floor around 250p so I believe that should continue to recover but not quite as fast as I originally thought.
It was the '10% of contracted school routes not being run ' in the US which is the issue, certainly worse than I was expecting. Some weeks back I saw that they were being sued over failure to provide a adequate service in one region.
So saying the problem with drivers extends across the board so alternatives are limited and nex have picked up a couple of new school contracts in the past couple of weeks. Ultimately they will be one of the best placed to recruit, although it will (as can been seen) result in lower profits in the short term.
Their strength is that being internationally diversified they have other regions (notably Alsa) which can help balance the current issues in the US.
It looks like they clearly still have plans to cap profits/raise taxes which is weighing on the sp.
From the Gov Levey fact sheet-
'The levy does not apply to the electricity generation sector. However, certain parts of it have also seen extraordinary profits partly due to record gas prices. As set out in the Energy Security Strategy, the government is consulting with the power generation sector and investors to drive forward energy market reforms and ensure that the price paid for electricity is more reflective of the costs of production. Those reforms will take time to implement. In the meantime, the government will urgently evaluate the scale of these extraordinary profits and the appropriate steps to take.'
Hopefully UKW will be very clear at highlighting that all profit beyond our normal divi's are reinvested in further expansion in UK windfarms and that taxing this further will just reduce the funds available for investment.
April's came in at around 13% below the 10 year average, a little better than I originally expected. With the jet stream sitting over us, so far May looks to be at least average (or possibly above?), given the prices are still at nearly double the 'normal' levels they should be making a good profit.
Given some of the leaked/speculative comments in the media about lower windfall taxes for the energy companies if investing in the UK there is a good chance that even if they were to apply a windfall tax to UKW the impact would be minimal.
With the sp almost at nav I have taken the opportunity of the dip to add a few more this week.
Also in the Times today-
'While Sunak and Johnson now agree on the principles of a windfall this is unlikely to be extended to electricity generators, which have also made larger than expected profits as the result of high energy prices.
A source said the policy had been examined by Treasury officials but was “complex” to implement and unlikely to form part of the announcement.'
As I suggested yesterday may be it was just being used as warning and leverage for those not initiating their cfd's to gain benefit of spot prices. They must also have noticed the stock market response which highlighted that extra taxes are not going to help them increase the funds flowing into renewables.....
The FT has said that the government is considering extending a windfall tax to include wind farms.
Although making increased profit I did think UKW (and other renewables) would avoid such a tax as It would seem that all this will achieve is reducing investment in the one area the government want to expand! They are only paying their inflation linked divi as normal, are not doing buybacks and are reinvesting further profits in new projects.
There have been suggestions that some companies are not fully commissioning turbines on CFD's so they can benefit from higher spot prices, so hopefully it may be a lever to put pressure on this area. rather than something which will be enacted.
I think that they have already have two large zoo installations as very positive sign.
The shares were around 7.5p when they were looking to a comparable number of seats in early 2020. Along with an established customer base in aquariums and having the zoo offering putting in 40 seaters at a time puts the company ahead of their position then so hopefully it should start to be reflected in the share price .....
Answered in todays rns
'The new seats, including motion platforms and VR headsets, will be fulfilled from stock currently held by Immotion.'
Good news with another large zoo contract.
I note with this contract they have an installed base of 468 which is around the amount we were looking at pre covid in early 2020 ('We expect the total number of installed, and operational headsets at the end of March 2020 to be around 400, with further installs to take place in early April, which with the additional 28 headsets, noted below, will take the total number of headsets in operation to 465.').
So the question is what capacity /availability of hardware do they have to go beyond this to 500+ this year?
They were edgy about this in the interview. They should have the cash + RCF to keep the gearing within their stated levels but I would not be surprised if they had one in the Autumn.
I thought the comment about the FTSE 100 was interesting but they would need more than the £400M to get there which lends weight to the possibility of a further raise. If it was going to be enough to get them very near or into the FTSE100 then there would be plenty of demand even at reasonable premium to NAV.
Q2 should be going well, the wind was low in April but the prices very high. This month the prices have fallen from circa 200Mwh to 100 (now increasing again) but it has been windier.
It is hard to see things being other than positive going forward, at least for a year or two.
WH Ireland have maintained their predictions for full year, making the point that Q1 is the quieter quarter.
They maintain that the stock is cheap and that their fair value assessment is 1450p.
Revenues are on track but EBITDA (even adjusted) is a bit low.
On the other hand it is a fairly defensive stock with good growth potential as we we move to stagflation/recession. Australia may have been flooded but they have major problems with drought in large areas of the US which will ensure they are busy this summer.
So what was/is fundamentally wrong?
The only thing you have flagged, on more than one occasion, was a director sell from a year ago.
There is clearly someone selling down but most of my small caps have been hit this week (except an insolvency company).
We had an update only a week ago! Immo aren't too bad for this and I am sure they will if there is something to say.