Thursday, 12 June 2014

Renewable Energy (Portfolio Buy)

What would the Don say?
Source
After getting a bit depressed about the options for good yields on offer for my current cash pile, a comment from a reader cheered me up - hopefully, in a good way.

I guess that most of us have become more aware of the environmental impacts of our activities. Despite trying to 'do the right thing' environmentally. I have always been a bit sceptical about alternative energy.

Until now, that is...

One of my fads a few years ago was tying to reduce our family energy consumption - watching the meter, unplugging 'power vampires' and economising on hot water.

Our local authority has also become much more of recycler and every day we carefully separate the different recyclables, reducing our family non-recycled waste to around half a black bin bag a week.
In addition, hardly anything useful is thrown out, with regular delivery visits to the charity shops and clothes/shoe recycling skips.

Moreover, I have always gardened in a fairly organic way, avoiding pesticides, operating a couple of compost heaps and weeding by hand.

So, we are sensitive to the environmental issues.

However, renewable energy is challenging. Despite the favourable public rhetoric, generation costs are higher (so renewables are always competing with fossil fuels, including the soon-to-arrive fracking downstream products) and the level of subsidy (required to make any commercial venture viable) is essentially a political pendulum. Yes, there is general public support for the concept, but people are increasingly upset about the high cost of domestic energy supply (due - it is claimed - in large part to so-called 'green taxes') and there is growing opposition to the establishment of on-shore wind farms.

Although the UK Government has made commitments on the future share of renewable energy, I doubt that these will actually be met, as the costs are likely to be too high - both financially and politically.

So, when an anonymous reader suggested Infinis Energy (LSE:INFI), my initial scepticism kicked in. However, the more I looked at it, the more I liked it (although - I hasten to add - I may be completely wrong). The 2013 Annual Report and Accounts makes interesting reading for someone new to this sector. Infinis operates a portfolio land-fill gas sites, wind farms and hydro-electric power stations.

First the positives:

There are downsides, of course:
  • the forecast earnings per share are less than the forecast dividend, usually a sign that the dividends are not sustainable
  • the spot prices for fossil fuels have fallen, primarily due to increasing stocks as a result of mild weather
  • the public push-back on 'green' taxes
  • increased opposition to new on-shore wind farms 

However, one particular statistic in the Annual Report caught my eye: Infinis is the third-largest producer of renewable energy in Britain, trailing behind - wait for it - SSE and Scottish Power, two of the energy 'big boys'. It seems to me that, to any energy company seeking to improve its public image, the acquisition of Infinis would look like a powerful PR move, as well as potentially not too shabby, financially.

We shall see. Don Quixote famously attacked a windmill because he thought it was something else - whether I am 'tilting at windmills' for a similarly wrong reason remains to be seen.

As of today, Infinis is my highest-yielding dividend share holding, having taken a third of my cash off the table.

Thanks Anonymous.


[Purchase price:£2.14]


I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

4 comments:

  1. It has gone up, you are the man that moves the market (at least a little bit).

    ReplyDelete
  2. Hi Sisyphus,

    I came across this article , which will fit your investing theory well.

    http://wealthstory.blogspot.sg/2012/04/time-to-re-assess-price-to-book-stock.html

    This is a journalist who has become an asset manager in Singapore.

    PTB as a predictor of a company’s future stock performance was first highlighted by US finance professors Eugene Fama and Kenneth French in 1992.

    Dividend yield and PTB ratio form part of my assessment criteria when i screen stocks. With the D/PTB ratio, it seems i now have a far more powerful screening metric to facilitate my investment decision making.

    I have used this to identify eight stocks in UK, which can spur your analysis.

    Company Symbol Div yield (%) PTB DYPTB Dividend Cover

    Asian Citrus Holdings Ltd.   ACHL 3.56 0.22 16.18181818 0.62
    Huntsworth plc   HNT 6.83 0.64 10.671875 1.66
    Phoenix Group Holdings   PHNX 8.19 0.77 10.63636364 1.28
    Utilico Investments Ltd   UTL 6.22 0.77 8.077922078 1.68
    Vodafone Group plc   VOD 5.56 0.74 7.513513514 1.68
    Friends Life Group Ltd   FLG 6.39 0.9 7.1 1.47
    Wm. Morrison Supermarkets MRW 6.65 0.97 6.855670103 2.07
    Anglo Pacific Group plc   APF 5.26 0.99 5.313131313 0.82

    Hope this is of use to you

    Regards

    V

    ReplyDelete
    Replies
    1. Thanks Vatsa - I already own half of those, so I'll check it out.

      Delete