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Extra Material from January 2022

This paragraph was cut from the newsletter copy for reasons of space.

That leaves just one trust to mention before we finish – a potential turnaround story that looks very interesting. Riverstone Energy (RSE, 465p) had been a dreadful performer as an oil and gas investor and faced a discontinuation vote in December 2020, blocked by a cornerstone investor with an interest in the management fees continuing. It looked like a hopeless case, but the trust changed its investment strategy to invest in new clean energy technology, including lending software for domestic solar power installation, battery-integrated fast chargers, solid state batteries, and the manufacture of wood pellets, and it may be better placed now as a result. The brokers JPMorgan Cazenove upgraded the shares to overweight again in May 2021, and in July the trust sold its interest in an oil fund for US$172m. Ironically, during this period, the trust’s NAV jumped due to revaluations of old assets that had previously been written down sharply. In August, JPMorgan Cazenove calculated that the energy transition portfolio accounted for 28% of NAV, with 15% is listed oil & gas, 29% in unlisted oil & gas, and 28% cash. They said that after stripping out the listed holdings and cash, the wide discount on the shares was equivalent to the entire value of the unlisted investments, effectively valuing them at zero. The broker Liberum points out that the discount may remain wide until there are further structural improvements, such as dealing with the five year investment management termination fee, and we might add that there is some complex financial engineering going on under the bonnet here, with use of SPACs for instance. Nevertheless, the current discount of 48.8% looks intriguing in view of the thumping 82% jump in NAV over the last year. We think the shares are of considerable speculative interest, but would not be for everybody.

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