This quarter we chose three investments that really piqued our interest:
1. Bio Mass Investment marketed through Wealth Options
2. Kick Out Note from Merrion Stockbrokers
3. Arena Capital’s Wind Farms
This Ethical investment is supported by the UK government and is asset backed (no borrowings). €60 Million of investors’ money will finance the build of the Biomass plant near Hull. The plant is well under way to completion and only €15million remains to be raise.
This investment pays 31.5% gross over less then a three year term.
Very simply; the technology allows waste wood to be incinerated in a way to create energy which is then sold to the national grid. The UK government has supported this project by means of renewable energy incentives called ROCs (Renewable Obligation Certificates) for 20 years. These ROCs are ultimately redeemed by the energy companies, to whom the government pays a subsidy per MW. If the plant is finished by March 2017 it will receive 1.8 ROCs per MW. It is expected the plant will be finished well on time; however if is not complete by March 2017, the plant will still receive 1.4 ROCs per MW. The company, GB Bio Ltd., will construct and operate the plant during the investment period. The intention is to sell the plant or exit by debt refinancing to repay the investors.
Why we like it:
1. We are saving the planet; this plant will replace a similar sized coal burning plant and lead to CO2 savings of approximately 162,000 tones a year.
2. Each end of the investment has been secured. Full planning has been granted. There is a Construction Guarantee Bond, the Feedstock contract has been signed with enough wastewood to keep the plant going 365days a year with a reputable feedstock supplier, who are also 5% stakeholders in the project.
3. Earnest and Young have valued the plant at £125Million. With total build costs and finances raised from investors of £40Million theirs is huge scope for repayment capacity.
4. This is a sterling based investment, which is currently cheap to buy.
KICK OUT BOND
This 3 year Kick Out Bond tracks three stocks: Cisco Systems, Imperial Brands and Pfizer.
How it works: Automatically “kicks out” (pays) if all of the stocks are above 95% of their initial price at purchase. The payout is 3.3% every three month interval that goes by. For example if 12 months go by before the three stocks are 95% or higher of their original value, a retun of 13.2% would pay out. If at the end of three years no kick out has happened, but all of the stocks are higher than 60% of their value, you get your capital returned (referred to as “soft capital protection”).
Warning: If the stocks are more than 40% down at maturity you only get back the value of the stocks and your capital is at risk.
Facts: Normal investments subject to Capital Gains tax. No tax applies to pension funds. Issued by BNP Paribas. Minimum Investment €25,000.
Why we like it:
We believe in the underlying shares and their ability to be valued at more than 95% of their purchase prices in the investment period.
Cisco has spent the past number of years transforming its organization to better align the sales force, channels and R&D with the changing market landscape. The company is moving away from its core switch and router business and focusing on higher growth segments such as software, security and the Internet of Things market. Our understanding is that all these transformations are coming to fruition which could have a visible impact on Cisco’s financial performance in the coming quarter. Cisco trades on a 2017 Price/Earnings ratio of 12.9 times, and is forecast to give shareholders a dividend yield of 3.4%.
2. Imperial Brands
Imperial reported strong results for the first half of 2016 with net revenue up 15.4% on last year, tobacco net revenue +16.8% and adjusted EPS +20.4%. The company is starting to reap the rewards from the assets it acquired as a result of the Reynolds-Lorillard merger in 2015, which added 6.2% to volume growth during the first half of 2016. The acquisitions give the company a solid presence and further growth potential in the US with Imperial now holding three of the top ten cigarette brands in the country. The company is also concentrating on increasing its presence in growth markets ) where it sees opportunities to gain market share. Imperial trades on a 2017 Price/Earnings ratio of 14.5 times, and has an indicative dividend yield of 4.3%.
3. Pfizer Inc
A global biopharmaceutical company with a diverse portfolio of pharma products covering the areas of cardiovascular, anti-infectives, CNS, anti-inflammatory, oncology, metabolic disease and others. The company is perhaps best known for its Viagra tablets and Lipitor tablets (cholesterol), but has many vaccine and key consumer healthcare products.
Pfizer recently announced its intention to acquire Medivation, a cancer drug company, in a $14 billion deal which will position Pfizer as a leader in oncology. We see the potential for further mergers and acquisitions to improve near-term earnings and/or the longer-term growth profile of the company. The company trades on a 2017 Price/Earnings ratio of 13 times and is forecast to provide shareholders with a dividend yield of 3.7%.
ARENA SERIES5 – WIND FARMS
Arena Capital is raising finance for the development and operation of Medium Sized Wind Turbines in Northern Ireland, The United Kingdom, and Europe by the way of loan note. All of these investments have Government backed incentives via ROCs (as explained above in BioMass) and the European wide Feed in Tariff (FIT).
Arena is expanding it’s well established renewable energy company by raising investor funds to purchase new wind turbines manufactured by Canadian company Endurance Wind Power Inc. Arena Capital sells the energy to the national grid, and receives income via FITs (Europe) or ROCs (UK).
This is a ten year investment with a potential exit after 5 years. The coupon rate is 10% per year, reducing to 9% if early exit is taken.
Quick Facts: Non pension investors are subject to income tax. Series 5 is a sterling investment, paying its coupon in sterling.
Why we like it
1. You can log on any time to see how much wind is being caught/energy being produced by all of the current 10 operating turbines. There is a handy key telling you how much CO2 emissions are being reduced.
2. An asset backed investment, with no borrowings.
3. This is a sterling based investment, which is currently cheap to buy.
4. European and UK backed renewable incentives further secure the investment.
5. All of the hardware has a manufacturer’s warranted for 10 years, with extended warranty insured against loss of income and specified perils.
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