Directors at this pair of high-quality stocks are digging deep. Our City writer explains what might be behind the buying.
A FTSE 250-listed environmental investment trust whose premium valuation crumbled during 2022 has received £100,000 of backing from its newest board member.
Glen Suarez made the investment on Thursday as he prepares to take over as chairman of Impax Environmental Markets Ord (LSE:IEM), a trust that offers investors exposure to environmental themes ranging from renewable energy to water treatment.
Its shares have typically traded at a premium to net asset value (NAV) but this reversed during a difficult year as investors rotated away from quality and growth to value stocks.
Kepler Trust Intelligence said this had created a “compelling opportunity” for longer-term investors, noting the benefits of an experienced management team and exposure to a mix of largely smaller and mid-cap companies across diversified environmental markets.
The portfolio of the UK's largest environmental investment trust is made up of around 60 listed holdings, with just over half being based in North America and 36% in Europe.
The biggest by weight are hazardous waste management firm Clean Harbors and the efficient manufacturing business PTC. Recent investments have included a leading US player in wood-plastic composite decking, a material that is gaining share due to having better durability and lower maintenance and environmental footprint than traditional decking.
The UK-listed pair Spirax-Sarco Engineering (LSE:SPX) and Croda International (LSE:CRDA) are among the other top 10 holdings. Waste management accounts for a quarter of the portfolio, followed by the sectors of water management and energy efficiency with around 15% each.
Over the five years to November, Impax delivered total returns on NAV and shares of 65.8% and 75.3% respectively versus its comparator index being 55.1% higher.
Shares started 2022 at a healthy premium to NAV of 10.2%, but this quickly became a discount as the FTSE 250-listed shares fell by 20.5% compared with an 11.5% decline in NAV over the subsequent 11 months.
Kepler said recently: “This period of better relative value has coincided with a potential strengthening in the long-term prospects for many underlying businesses.
“The current heightened geopolitical and macro issues hitting the headlines today are supportive for many of the longer-term themes in the portfolio, namely energy efficiency and renewable energy.”
Despite the longer-term imperatives to take action on climate change, enthusiasm for the sector has cooled in recent months as investors have favoured sectors such as conventional energy and financials.
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Another reason is growing concern in the market about ‘greenwashing’, where some funds are perceived to have overstated Environmental, Social and Governance (ESG) credentials.
Chairman John Scott said recently: “We believe that our 20-year record of investing in environmental markets and our unambiguous focus on companies providing the solutions to sustainability challenges set us apart from many of the more recent entrants to the space.”
Scott is retiring from the board after May’s AGM and is due to be replaced by Suarez, who joined as a non-executive director in October. He was chairman of Edinburgh Investment Trust from 2017 until last July and previously spent eight years as head of European energy, infrastructure and utilities investment banking at Morgan Stanley.
Suarez made his purchase at a price of 425.6p, with shares closing the week at 428p.
Another trust on the buy list
The ESG theme for new year director dealings continued on Friday when a board member of JLEN Environmental Assets Group Ord (LSE:JLEN) spent £15,000 on the FTSE 250-listed shares.
Alan Bates, who is chief executive of Guernsey Electricity, made his maiden investment in the company at a price of 119p. That compares with 132p in September and a last reported net asset value of 124.4p.
JLEN backs environmental infrastructure assets with the aim of providing investors with a sustainable and progressive dividend on a quarterly basis. It has grown the dividend every year since its IPO in 2014 and is targeting 7.14p a share for the year to 31 March.
A diversified asset base of more than 40 projects across the UK spans wind, solar, anaerobic digestion, waste facilities, wastewater treatment, bioenergy, low carbon transport, battery storage and hydroelectric power.
Its recent investments have included 50% stakes in two battery storage projects in Scotland, as well as a 2.1 hectare glasshouse project located near one of its low carbon energy plants.
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The portfolio offers a high degree of inflation linkage, with 60% of lifetime revenues tied to the retail price index. The fund, which is managed by Foresight Group, recently assessed the impact of the government’s levy targeting excess profits being made in the wholesale electricity market by low carbon generators such as wind and solar.
This led to a £7 million reduction in the NAV to £822.6 million or 124.4p a share, compared with 125.5p recorded in half-year results.
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