Category Archives: SALT

Eneti and Brookfield Renewable Earnings

By Tom Konrad, Ph.D. CFA

Here are a couple earnings notes I shared last week with my Patreon followers.

Eneti, Inc. (NETI) – formerly Scorpio Bulkers (SALT)

Eneti completed its name and ticker change on February 8th. New ticker is NETI (formerly Scorpio Bulkers (SALT), which I recently wrote about here.

Highlights from February 2nd earnings report:

  • 37 of the 47 vessels owned at the 3rd quarter have been sold or have completed sale agreements.
  • Net asset value is $23.94/share. Since most assets are cash or vessels held for sale, this number is basically accurate.
Rendering of future wind turbine installation vessel ordered by Eneti

The stock is still a good buy at the current $20-ish per share, since it’s trading below asset value. As the market starts to value this stock based on its new offshore wind turbine installation model, I expect it to start trading at a significant multiple of book value. I will be surprised if it ends 2021 under $30.

Brookfield Renewable Secondary Offering & Earnings

Brookfield Renewable Partners (BEP) and Brookfield Renewable Corp. (BEPC) announced a secondary offering of BEPC shares, as I predicted last month. What I did not predict was that the sale was by the company’s parent, Brookfield Asset Management (BAM) so this sale will lower BAM’s stake in the company rather than raising cash for Brookfield Renewable.

It has already had the predicted effect of lowering the BEPC/BEP price premium. When I added BEP to the 10 Clean Energy Stocks list on December 31st, BEPC shares were trading at a 35% premium to BEP. Since then BEP is up 9.8% while BEPC is down 9.1%. The premium has fallen to 12%.

In the short term, I expect the premium to start increasing again in a week or two, although I doubt it will ever get back above 30%. After it recovers, we can expect more secondary stock offerings, which will drive it back down. In the longer term (after a year or so) I would expect the premium to stabilize in the 10-15% range.

If the premium falls to 5% or less because of the secondary offering, it will probably be worth selling BEP to buy BEPC, at least for shareholders with relatively small unrealized capital gains.

Brookfield Renewable also announced fourth quarter earnings last week. I’d sum it up as “Steady as she goes.” The company increased its quarterly dividend by 5% to $0.30375, at the low end of its 5% to 9% target annual increase.

Disclosure: Long NETI, BEP, BEPC, short BEPC calls

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Eneti and Brookfield Renewable Earnings appeared first on Alternative Energy Stocks.

SALT: Buying the Balitc Dry Dips

by Tom Konrad, Ph.D. CFA

The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange. It measures changes in the cost of transporting various raw materials, such as coal and steel.

Since the BDI is a measure of the income which firms that own dry bulk cargo ships can earn, changes in the BDI tend to drive changes in the stock prices of such companies.

Stock Price Correlation

Until recently, one such company was Scorpio Bulkers (SALT), one of my Ten Clean Energy Stocks for 2021 picks. The chart below shows the last 5 years, with changes in the BDI leading to changes in SALT’s stock price.

5 year BDI/SALT chart

There is also one notable exception to these correlated moves in June 2020, when the company recapitalized in a secondary offering.

On August 3rd, SALT announced its new strategy of investing in the next generation of offshore wind turbine investment vessels and selling its fleet of dry bulk carriers.

As SALT’s dry bulk fleet is sold, the company’s future earnings become increasingly independent of BDI. If the market were acting rationally, the correlation of the stock with BDI should also fall over time.

We’re not seeing that.

6 month BDI/SALT chart

In October, 50-ish percent moves in the BDI led to 25-ish percent moves in SALT. In January, we saw two 30-ish percent moves in the BDI, and the corresponding moves in SALT were around 10 percent to 20 percent.

Vessel Sales

In both cases, the stock moves were approximately half the size of changes in the BDI. Between the start of October and the end of January, SALT announced the sale of 22 Vessels: 7 in October, 3 in November, 6 in December, and 6 in January. The company has sold approximately two-thirds of its fleet since the new strategy was announced on August 3rd, but the stock is still following the index..

Why is BDI Still Driving the Stock?

The continued correlation between SALT and BDI is likely due to quantitative hedge funds using programmatic trading to take advantage of correlations between BDI and all dry bulk shippers. Some of these programs (which may rely entirely on machine learning) have not yet been updated (or updated themselves) to reflect SALT’s declining dependence on dry bulk shipping for its future earnings.

Timing

When a stock falls for reasons that do not have to do with its fundamentals, I call it a buying opportunity.

BDI and SALT have both fell in late January. Enough said.

DISCLOSURE: Long SALT.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post SALT: Buying the Balitc Dry Dips appeared first on Alternative Energy Stocks.