Trading Emissions Plc (LON:TRE) is selling stakes in Italian solar power operations in a deal with JP Morgan backed solar developer Sonnedix.
The deal delivers 8.5mln of net proceeds, which exceed the groups market capitalisation (£6mln), and the cash - minus Trading Emissions operating costs requirements - will be returned to shareholders
It is selling its entire interests in the Etuno Srl and Solar Energy Italia 6 subsidiaries, known as Librandello, which essentially comprise three ground-mounted solar photovoltaic plants with a combined capacity of 11.2 megawatts (MW).
A portion of the sales proceeds, 3mln, will be deposited into escrow with 1mln scheduled for release after twelve months and the remainder on the second anniversary of the deal.
Trading Emissions noted that its interests in the Italian assets were held as part of its private equity portfolio which, at the end of December 2015, was deemed to be worth £16.1mln (21.8mln).
It was reported yesterday that JP Morgan Asset Management had acquired nearly all of solar power developer Sonnedix.
The acquisition followed a joint venture, established in 2014, between JP Morgan and Sonnedix, and comes as the cost of photovoltaics (the power generating units) continues to fall.
Sonnedix has subsequently increased its operating capacity to 353MW, and it has a pipeline that represents a further 600MW of future capacity.
Cash at company post dist. is 1.88p
At company valn just over 5p of value left
At say 2.5p per share that leaves 0.62p of risk/value for the private equity assets that per the company are worth 3.12p........
Will look into valuations further but still holding my position here on a risk reward basis
Interesting result - they have reduced costs hugely now, renegotiated Poland sale and are hopefully finalising Italian issues.
Given the cash in the Italian companies and the monies due from Poland sale are about 6p a share will be interesting to see valuation after final CER issues go away (hopefully).
I've taken a look and was very tempted to pull the trigger today...
it looks like a good discount to assets
CASH payments within 2/3 mths
News imminent by end of March
you have a significant % invested in them
your track record is good with conservative situations.
but in the end decided not to!
I thought yes probably will make some money in a short time,
but I also saw risk and I don't have a detailed understanding of the company,
so decided to hold onto CASH in case further market turmoil in coming weeks.
thanks for mentioning
All IMHO, DYOR + BoL
TRE is not in my portfolio
BQE is in my top5 hldgs (will post there now)
So how much will they cash out when they announce pre the end of March ?
I think 3.5p is given per share as that would leave a little reserve at the co. and would have no cash remittances from subs
If all cash at subs distributed as well would be 8.5p
So my thought is about 4-5p a share will be distributed !
...Therefore, applying a 20 per cent discount to the value of the private equity portfolio and adjusting for the cash proceeds received since the December half year-end, I reckon the company will do well to achieve around 11.5p a share of cash from this portfolio. True, Trading Emissions also has 10p a share of pro-forma cash on its balance sheet, but once you factor into the equation wind up costs of say £10m, or 4p a share, and a carbon credit portfolio with a liability of 0.4p a share, then at best I now think a total distribution of only 17p a share could be forthcoming. But this is clearly going to take time, and much longer than I anticipated when I last recommended buying the shares at 17p when I estimated a return of 22p was likely. The difference is accounted for by the asset write downs and the deterioration in the climate to sell these assets at anything close to book value.
Apparently IC stock guru Simon Thompson had suggested investors reinvest their special divi from June at 19.5p (in an article yesterday?) and has written again today in light of the shock announcement. He says that, even assuming a 100% write-off of the Brazilian venture, the shares trade at a 40% discount to book value. There has been success with the ongoing disposal programme and the market is discounting the likelihood of more special dividends. Whilst suggesting one waits now til details of writedown are published in accounts to end June, due by end October, he says he "is not bailing".
Personally I see today's fall as a decent opportunity to get in/top up but hope it will fall a bit further to present a fantastic one.
There could be further upside to come if my sum-of-the-parts valuations prove on the ball. By S Thompsons reckoning, Trading Emissions had a pro-forma net asset value of 52p a share at the end of March after factoring in the aforementioned 6p a share capital return. Book value consisted of a carbon credit portfolio with a negative liability of £14m, or 5.6p a share; a private equity portfolio worth £105m, or 42p a share; and net cash of £39m, or 15.6p a share. However, in April the cash sum was bolstered following the drawdown of a 31m (£26.5m) loan by Trading Emissions' wholly-owned subsidiaries, TEP Solar Holdings and Solar Energy Italia. Of this sum, at least 26m was passed onto Trading Emissions. In other words, the company's cash pile could potentially now be around 24p a share, of which 15p will be returned back to shareholders shortly.
This means post the forthcoming 15p a share capital return, Trading Emissions' adjusted share price of 19p is trading at a hefty 50 per cent discount to pro-forma book value of around 37p, of which around 9p could be in cash. That discount is still too deep given the scope for further capital returns, especially as the company is actively looking to dispose of its portfolio of carbon and private equity investments. From my lens, fair value is nearer 40p a share and I maintain my positive stance.
9.5p of free cash
3.8p of restricted cash
-5p of payables
and I think a min of 14p of investments to give about 21p min left after 15p a share cash is paid out.
However they and their accountants think they are worth another 15p or so and it would be a guess for me to try to get to the right answer due to contingent sales e.t.c
coming to the company as well as the removal of a 2m eur loan (net 28m eur ) - that should mean the company have a lot of cash now about 25p a share ! Some will have to stay at the company but looking forward to say 15p a share payout very soon
Following this update, the company should be capable of a cash distribution of around 20p, though I suspect it'll be more like 12p, they seem to feel it prudent to retain quite a lot of unrestricted cash for a reason I don't quite understand.
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