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"Onshore salt cavern opportunities
Key opportunities for investors include gas trading arbitrage, long-duration storage and interseasonal hydrogen storage.
Gas trading arbitrage
The primary role of gas storage sites is to store gas for periods of high prices (that is, trading gas by buying at low prices and exporting at high prices). This was why EDF'S Cheshire sites were developed in the first place, and the gas markets are now much spikier than they were.
Long-duration storage
EDF looked at the potential for compressed air storage at both Hole House and Hill Top Farm some years ago, and long-duration energy storage (LDES) is now very much on the net zero-inspired agenda.
It is regarded as one of the key mitigants between high output/low demand and low output/high demand periods, brought about by an increasingly intermittent renewable-backed energy system.
The economics for EDF's gas storage sites did not stack up a few years ago, but last year they received funding from the Department for Energy Security and Net Zero (DEZNZ) and the government is very motivated to explore LDES as a proof-of-concept.
Interseasonal hydrogen storage
Interseasonal hydrogen storage is the real sweet spot for a future decarbonised energy system, which needs hydrogen to play a role in storing energy (hydrogen is an energy vector) between seasons: capturing hydrogen produced during high-wind peaks for use in low renewable/high demand periods. This is where hydrogen is intended to displace the role currently played by gas peaking plants, and open and closed-cycle gas turbines."
Very interesting read below from a couple of months back;
https://www.lexology.com/library/detail.aspx?g=82ecc181-7225-4757-8245-5902a5090682
"The operation of gas storage sites, particularly in salt caverns, is less simple than might first appear. However, the opportunities introduced by a net zero energy system are significant, and gas storage in salt caverns is one of the few credible solutions to both LDES and the interseasonal storage of hydrogen, making it the perfect complement to a renewables-dominated energy system."
Jeez, people are going to get nailed on this.
For a start, each NASDAQ share = 2x each AIM shares.
So $1.25 = $0.62.5c / 49p. NOT 100P.
They have no cash & were on the verge of going bust;
"Net loss was $10.2 million for the three months ended September 30, 2023, compared to a net loss of $12.0 million for the three months ended September 30, 2022.
Cash and cash equivalents totaled $13.9 million as of September 30, 2023."
I suspect they will be selling shares via their NASDAQ ATM facility to pay the bills. The company certainly needs to release an RNS to control this ridiculous price movement though.
Bounced back off 'technical' resistance at £17.80, that's the 5th time since November that shares have failed at that level (not helped by market makers setting their usual false spread of course). Ultimately it just means that Alpha should be able to buy back more shares with their initial £20m allocation, so short term I'm happy for it to remain range bound, although don't expect us to get any more gifts in the £15 range...
I do find the the UK market incredibly depressing though, having spent time looking at Australia, Scandinavia & of course the US, I find it hard to believe that Alpha would be capitalised at
100%, early Feb it was NT at 7p for more than 10k shares, a couple of sells for £5 or so land and it drops back under 6p. The market makers desperately want to keep this under the radar, volume is tiny, when a big volume day arrives we'll be back over 10p in a flash. All of us who have posted here for a while know what the required catalyst is!
Agreed @koolhead, the valuation sub £15 was one of the craziest I've ever seen on a stock market. Pleasingly, the buyback is being conducted in a very aggressive manner - £1.6m stock already bought back in the first 7 days, reducing share capital by ~0.2% already. Given the balance sheet strength, they could very easily keep a buyback in place which utilises say 75% of daily interest income, this would buy around 13k shares a day / 3.3m per annum at £18. That alone would boost basic EPS by nearly 10%... Of course, if average cash balances continue to grow and rates remain in the 3-4% region then their buying power could increase further still. Such a fascinating situation moving forward.
Another 30k shares bought back yesterday - if you scroll to the bottom of the RNS it breaks down that total into the individual trades with time stamps, which is nice info to have. It confirms to me that they are picking up shares when there isn't a buyer for a sell. In pre buyback times the 25k shares they bought at 9.08am would have very likely caused the share price to fall back, particularly if the falling price had generated more selling. Not so now.
Shares have now reached the first resistance point, in line with 5 month highs, can they break through and extend the 7 day rise?
This news certainly adds further momentum to the recovery and great to get confirmation that H2 operating income remains on track for £167-187m. There is no pattern to H1/H2 trading here, however looking at historic splits since IPO it's unusual for strong momentum to only last 6 months. Consequently, I expect their FY25 guidance to come in well above the current market expectations which have a mid point of £295m, and could be anywhere up to the FY22 3 year target level of £360m. Couple that with the efficiency savings and operating income will be back well above £100m and I expect shares will be at least £2.50...
Excellent week here, and I agree with your targets @koolhead, this is still a bargain entry point with the 200 DMA at £19.50. From watching the book I suspect we've had a new II buying in the market which has removed the need for Alpha to take the other side of any forced sells. In the meantime, Alpha should have generated another £1.5m in interest income, meaning they've paid for the shares bought back nearly 5 times over!
Article released 31 mins ago;
https://www.retailgazette.co.uk/blog/2024/02/superdry-stake-shares-fall/
£400-600m value if owned by a brand management company!
"A new investor has begun stakebuilding in Superdry, leading to takeover discussions around the business intensifying.
First Seagull, a Norwegian alternative investment fund, has snapped up a 5.3% stake in the retailer.
It is thought that the investor considers the fashion retailer to be ripe for a bid following various profit warnings over the last year knocking down its share price.
Authentic Brands Group and Sycamore Partners are also thought to have the clothing company on their radars.
The news led to Superdry’s shares immediately jumping by around a fifth.
Superdry’s value owned by a brand management company would be roughly £400m to £600m, from its current value of around £21m, sources have suggested.
The brand is believed to have cancelled a meeting with investors yesterday, further fuelling speculation.
Superdry’s share price has plummeted nearly 90% over the past year, according to The Times.
The business is currently working with PwC advisers and is exploring options such as a company voluntary arrangement or other form of restructuring, under a move that could lead to job cuts and store closures.
In January, Superdry boss Julian Dunkerton admitted the retailer was facing a “difficult period” ahead as it posted widening losses and revealed CFO Shaun Wills had quit the business."
On reasoning, they went into quite a bit of detail on capital allocation in the half year report;
"Alongside allocating capital to grow the business, the Group intends to continue with its progressive dividend policy. When taking all of the above into consideration, we believe the Group's current cash position creates significant return-enhancing opportunities. We will of course review our cash position on a regular basis, and if we feel it becomes excessive, will look to adjust."
Given the Q4 ACB of £2.1b at a blended rate of 3.8% would have generated £20m in it's own right, I suspect it's simply genuinely excess cash + the share price had / has become disconnected from reality. It also doesn't make any sense to let your share price become depressed when you have the means to decisively intervene.
No messing around on the buyback front, 20k shares taken out of circulation for £317k. Hopefully they continue to sweep up forced selling and reduce the share count further.
Free float could become really tight; as per their website >1% holders control a cumulative 85.14% of shares. I also have the following holders just below the 1% level, as per simply wall street register info, annual reports & II quarterlies;
Clive Kahn (chairman - 0.84%
Schroeders - 0.82%
Phoenix Asset Management - 0.82%
Rights & Issues PLC - 0.78%
River & Mercantile - 0.7%
Unicorn - 0.25%
Other PDMR's- 0.15%
That gets you to 89.5% of shares, however that doesn't include vested employee shares.
So far there have been~2.5m shares issued as part of B, C & E schemes. That's another 5.8% of SII, leaving just ~5 - 10% genuine free float depending on how many employee shares have been sold. Given these will be senior managers & long serving employees who are committed to the CEO's vision, I can't imagine many being sold, so likely towards the lower end of that scale.
So if Alpha take £20m out of circulation at an average price of £18 (1.11m), they would reduce total share count by ~2.5% but more importantly take between 25% and 50% of free float out of circulation.
Will be interesting to see what the impact of that is!
Feels like a win win to me, if they engage positively in settlement discussions then we will rocket, likewise if they don't then the NoA will be lodged and we'll be notified of the quantum - which based on volume this month (3.5m shares / £200m total) the market appears completely unaware of.
NT to buy at 6.5p, be nice to continue the pattern of higher highs and head towards the resistance at 11p, then looking for a gap and go above that level when the quantum is released...
Related to GreenX, but the government attitude is extremely relevant to PAT's case;
"An interesting article was written by what seems to be a pro-Polish government journalist. Link below:
https://naszeblogi.pl/65852-bezpieczenstwo-surowcowe-nie-ma-ceny
The final paragraph of this article has some interesting points. English translation below:
"key deposits of coking coal to create competition for Jastrzębska Spółka Węglowa.
What was at stake was shown by the latest results of JSW, which earned a record PLN 7 billion in 2022.
Thanks to the efficient policy of Deputy Prime Minister Jacek Sasin and Minister of Climate and Environment Anna Moskva, the situation is now under control. An example is the Dębieńsko deposit. Its value was discussed by the previous management boards of JSW, which wanted to buy it from the Australians. These are the last large deposits of the most valuable type 35 coal in Poland. Estimates by Prairie Mining indicated that approximately 93 million tons of coking coal suitable for mining were deposited in Dębieńsko. Prices reach over PLN 1,000 per ton, which means that resources worth PLN 93 billion were at stake.
Of course, this bold policy comes at a price. Foreign investors have filed claims, which they pursue before the arbitration court in The Hague. The case is on the final straight and the verdict will be delivered soon. The value of these claims is over PLN 4 billion, but even if Poland loses the case and has to pay a one-off compensation, which according to legal experts is likely, the profits far outweigh the potential losses.
It can therefore be concluded that for the amount of several billion zlotys, it was possible to recover strategic deposits, the value of which is many times greater. More importantly, we managed to secure the security of raw materials and energy for many years, as well as ensure stability and a good future for important state-owned companies."
Yep, a strong previous support zone which was further reinforced by the 3.8m shares traded on Friday & the buyback announcement adds to it further.
As I said earlier last week, I found it unbelievable that shares peaked at £13.50 in January 2020 giving an at the time enterprise value of £426m (£464m cap, £38m cash), yet on Friday's low the EV was £460m...
Since that time the business has more than tripled underlying operating profit, added £140m net cash, diversified it's business model substantially & has an extremely material new income stream that enables muscle flexing like this morning.
It's a high quality growth stock trading like a value stock - get those buckets out!
Great news indeed, feels like the right level at £20m yet will be covered by around 3 months interest income. Onwards and upwards from here!
So in summary, I think it's a multitude of factors at play here, one of which could be some tactical rotation out of long term winners & into recovery plays to generate fund alpha.
Fund outflow driven selling from Liontrust, Jupiter & Cannacord has been a long term headwind which IMO capped the share price at £23
The proposed move to main market will also mean that any fund holding Alpha in an AIM IHT portfolio will be a forced seller, this could apply in part to any of the 18 names I listed earlier or those below the 1% level
I also think UK based funds like Kabouter could be selling to increase US tech / decrease UK exposure, but this is nothing more than speculation
The one fund that could have 'traded' the interest rate hedge is Abrdn, as there are lots of examples where they have taken large positions during Covid and then unwound them aggressively into an illquid market, crystalizing losses. The 3.8m volume yesterday certainly saw one large holder reduce or exit and another take a big position. Will be interesting to see what has moved in the next update.
Either way, the culmination of the above has created the cheapest valuation since April 2020, happy days if you are a long term believer.
So we know what's been happening with the shareholder base, but why have these funds been behaving like this? Take River & Mercantile as an example.
https://river.global/our-funds/fund-centre#/fund/GB00B1DSZS09/es-river-and-mercantile-uk-listed-smaller-companies/GB00B1DSZS09/document/
In Q1 2023 Alpha was the largest position in their UK Smaller Companies portfolio at ~£12m value or roughly 630k Alpha shares at the Q1 closing price of £19.30, which was 1.48% of the company.
https://instinctdigital.blob.core.windows.net/funddata/644b73606bafa-ES_RandM_UK_Listed_Smaller_Companies_Fund_2023Q1.pdf
In Q2 the fund said the following;
"Three other top ten positions delivered strong relative performance. Alpha Group International (+0.3),
Moonpig (+0.4) and Hollywood Bowl (+0.3) each continue to deliver. We view each as materially mis-priced
given the strengths of each business to generate attractive return on capital and growth."
But note that Alpha had been reduced to a 2.94% portfolio holding, behind Serco, Conduit, Hollywood Bowl & Indivior
By Q3 it was no longer a top 10 position, down to 2.17% and this continued into Q4 with the holding down to 1.57% (~300k shares)
So in Q2 they believed Alpha was materially mispriced, but over the year they sold 328k shares! Why sell then?
Note that fund AUM in Q123 was £364.5m, this had fallen to £329.2m by Q4, with almost all of that down to redemptions (performance was -1.4%). So in order to initiate new positions they have to reduce somewhere. I do also suspect there is an element of @koolhead's theory of repositioning towards shares that were heavily punished by rising rates / cost of living crisis - i.e. Sigmaroc, On the Beach.
Overall, I suspect they see Alpha as a long term play which they will wax & wane, adding back the shares sold this year when they take profits elsewhere... The fund outflows mean that they have to swing trade to remain active, and as the UK market has been so stagnant, tactically reducing a winner like Alpha would likely be seen as a logical decision
@koolhead, this is where Alpha's transparency around providing quarterly holdings snapshots down to the 1% level is so useful.
Some UK funds definitely play musical chairs and try to time the market, but there is more at play here. The market first became aware of the hedge in October 2022 when shares were £16 (35% down from their April 22 highs). I've got the fund data for each quarter from 300922 to 31223. Here are the start and end positions of the major holders;
- Liontrust and 11.64% to 10.07%
- Cannacord (inst) 6.82% to 3.76%
- Jupiter 6.02% to 4.74%
- JP Morgan 5.1% to 6.23%
- Cannacord (retail) 3.76% to 3.59%
- Soros 3.65% to 2.96%
- Fidelity 2.82% to 4.72%
- Martin Currie 2.65% to 2.28%
- Kabouter 2.51% to 1.19%
- Baillie Gifford 2.44% to 1.44%
- Aegon 1.9% to 1.65%
- Chelverton 1.73% to 1.56%
- River & Mercantile 1.71% to 0.7%
- Arbdn 1.65% to 4.04%
- Dowgate 1.59% to 1.07%
- M&G 1.5% to 1.4%
- Premier Miton 1.48% to 2.57%
- Blackrock 1.18% to 1.3%
So of those 18 institutional holders who have been on the register since the interest rate hedge was announced, 13 have reduced and 5 have increased. The movement of these 18 holders over the period of the hedge is -4.98% / 2.1m shares. Over the annual period from 30/09/22 to 30/09/23 it was -2.84%, so a slight increase in Q4 but the trend was the same.
More to follow on this...
Huge volume just gone through at £14.75, looks like the highest since IPO if you exclude secondary offerings. Incredible to be trading at 15x underlying profit before tax, and that's clearly ignoring the £177m cash pile + huge interest income inflows.
At 11x LY EV/Profit before tax, this surely has to be the cheapest shares have ever been. Just checked the placing in April 2020 & that was done at ~15x LY EV/PBT, so maybe only the crash to £4.70 on 30/03/20 could beat the current valuation, and that was at a time of unparalleled uncertainty!