UK Edition
The last time we wrote about Riverstone Energy, in January, we expressed surprise at the extreme discount – 90pc – at which it was trading, at least on one measure. We should have held our astonishment in check: on the same measure the discount now exceeds 100pc.
Before you protest that this is a mathematical impossibility – it would imply a negative share price – we should explain that the figure applies to its illiquid assets and depends on us excluding the trust’s cash and quoted holdings from the calculation.
We are saying that the market value of those liquid assets alone exceeds the value the market is ascribing to the entire trust, whose holdings include stakes in oil and gas companies and in businesses engaged in decarbonisation. Investors are indeed implying that the other assets – the unlisted ones, which are impossible to value on an objective basis – are worth less than zero.
Analysts at JP Morgan Cazenove, the broker, last week calculated the trust’s net asset value as $15.24, or £13.29, per share at the current exchange rate (we use the broker’s estimate in preference to the last update from the trust itself because the latter dates back to the end of September).
On a “headline” basis the discount is therefore 52.7pc at the current share price of 628p. JP Morgan added that it had “good visibility” on the value of 47pc of the portfolio as those assets are listed or otherwise easily valued. Forty-seven per cent of the NAV comes to 624.63p per share.
However, the trust is engaged in a programme of buying back its own shares and has £31m still to spend. Buying back shares when they are trading at such a large discount boosts the NAV and will do so to the tune of 5.8pc if the share price stays at current levels, the broker calculated.
This would push the figure to about £14 per share and the value of the liquid assets to 658p a share. As this is more than the current share price, the market would effectively be giving negative value to the other 53pc of the assets.
When we wrote about the shares in January we rated them a buy for that huge 90pc discount if we excluded liquid assets.
The share price has risen by 34.2pc since then. However, a lot has also happened, not least the outbreak of war in Ukraine, whose effects have helped to push up the trust’s NAV from an estimated 975p at the time of that article.
The discount aside, the trust’s assets in oil and gas should benefit from the strength of the oil price – even if the war ends tomorrow there is still a dearth of investment in the sector to replace sources that come to the end of their lives – and the fund’s managers are highly experienced in running decarbonisation assets. This trust is still a buy.
Questor says: buy
Ticker: RSE
Share price at close: 628p
Update: Doric Nimrod Air Three
This aircraft leasing fund has, like VPC Specialty Lending, covered here last week, attracted the attention of investors known for their ability to extract value. Elliott Investment Management, an “activist”, has bought a stake in Doric Nimrod Air Three as well as in sister fund DNA2 and in Amedeo Air Four Plus, a similar vehicle.
The shares at 47.5p stand 43pc below our tip at 83p in August 2019, although readers who followed our advice will have received 26.8p a share in dividends.
We have little concern that the airline to which DNA3’s Airbus A380 planes are leased, Emirates, will fail to pay the rent; hence we remain confident that the trust will pay its divis. There is more scope for doubt over the residual value of the aircraft when the leases expire in 2025, although things have changed markedly since the dark days of the pandemic, when no one could see a future for these enormous airliners.
Now Airbus and Boeing are struggling to fulfil orders on time, partly thanks to global supply chain bottlenecks, and suddenly having aircraft in their possession is valuable again for airlines. So Emirates may decide to extend its leases or buy the planes outright; even if it allows the leases to expire there is now more chance that value can be realised from these aircraft on the open market.
Nick Greenwood, manager of the Migo Opportunities trust, says aircraft leasing is one of the sectors he is “taking a good look at”. Hold.
Questor says: hold
Ticker: DNA3
Share price at close: 47.5p
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