Share price: 1,030c JSE code: MNK
BUY MONTAUK WAS NOT EXPECTED TO rocket when HCI listed it separately in 2014. It was described as a “struggling business” in the 2013 annual report.
It wasn’t an active HCI decision to invest in it in the first place, since it was part of the portfolio when HCI took over Johnnic.
When a company is spun off rather than sold, it can mean the holding company was unable to find a buyer for it.
Unexpectedly, Montauk’s shares have more than doubled in the 14 months since listing. That reflects two issues: the attractiveness of rand hedges, since Montauk operates in the US, and investors’ appetite for renewable-energy opportunities.
Montauk’s speciality is extracting methane from landfill sites and selling it as pipeline gas or generating electricity with it. It sits in the natural gas sector but because it is not using fossil fuel, it addresses a pollution problem and generates renewable energy credits.
Weak natural gas prices present a challenge, but Montauk is offsetting that with the sale of renewable energy credits.
The Southern California power station, which is under development, will sell electricity at a fixed price.
There are technical challenges in electricity generation from landfills, and these projects take time to come on stream. But with a 20-year track record, Montauk knows how to avoid the pitfalls and is in a good position to snap up its competitors in this sector.