Hold Riverstone Energy at a 19pc discount ‘in a market with few trust bargains’
Shares have gone nowhere since our tip but a top-quality management team offers long-term prospects
THE investment that this column recommended on Oct 19 last year has neither made nor lost money for readers. What should they do now? We tipped the Riverstone Energy investment trust on that date at £12.50 and the shares closed last night at £12.56. The company, which invests in oil assets, such as shale facilities in America, has a policy of not paying dividends. The lack of return has come in spite of Questor’s belief last year that it had identified a “catalyst” to drive the shares higher in the form of the trust’s policy of valuing its assets conservatively. This, we wrote, should boost its stated net asset value (NAV) when assets were sold.
But despite a couple of sales, including a reduction in its stake in Centennial Resources when that company floated, generating an annual return of about 55pc on Riverstone’s original investment, the overall NAV has not risen appreciably. The discount has widened slightly from 16.4pc last October to 18.7pc now.
But Nick Wood of Quilter Cheviot, the wealth manager, said: “We continue to hold our position in Riverstone. The key reason for our conviction is the quality of the investment managers [Riverstone International], who have a very long track record of producing significantly higher returns than the market.
“We believe this is due to their superior network and knowledge, while their scale, being the largest specialist energy private equity investor globally, is also helpful. The trust continues to trade on a meaningful discount in a market where there are few investment trust bargains.” He acknowledged that performance had been “somewhat disappointing” in 2018, with the higher oil price not filtering through into a significant increase in Riverstone’s value.
“In part, this has been the impact of a weaker dollar, reducing the value of assets in sterling terms. The predicted future oil price has also not increased as much as the ‘spot’ price, and it is the former that is more relevant to the valuation of the underlying companies within the Riverstone portfolio,” Wood added.
“We retain a positive view on the trust as a long-term holding and the best way to invest in the onshore US energy sector, given the experience and ability of management to extract significant value from it.”
Several of the trust’s non-executive directors have bought shares in recent months, including one purchase of almost £400,000. The portfolio managers between them own 7.8pc of the trust.
Questor says: hold
Ticker: RSE
Share price at close: £12.56
Update: infrastructure funds
The infrastructure sector has come to life since we wrote an update on it two weeks ago. A mooted bid for one such portfolio, John Laing Infrastructure Fund, on Monday has sent its shares 16.6pc higher.
Among rival trusts, HICL Infrastructure has gained 7.6pc and 3i Infrastructure 2.7pc, but John Laing Environmental Assets and Greencoat UK Wind have been virtually unmoved.
The board of John Laing Infrastructure Fund has indicated that it is likely to recommend acceptance of a firm offer from the putative bidder, a consortium of private funds.
Analysts speculated that other bids could emerge, possibly from other listed infrastructure funds, or from private vehicles or pension funds.
Matt Hose of Jefferies, the bank, said: “It is clear that pools of specialist private capital are increasingly looking at situations where larger funds trade on a discount.”
Alan Brierley of Canaccord Genuity, the broker, said the possible bid provided “a clear indication that sector prices had become undervalued by the market”. He added: “We also expect this offer to underpin valuation levels.”
Questor maintains its hold rating on the funds mentioned.
Investment trust news
The UK Commercial Property
Trust, managed by Standard Life Investments, acquired Reit (real estate investment trust) status on July 1 and changed its name to UK Commercial Property Reit.