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Solar
Lightsource has been building solar projects since 2010 with various partners. It is still led by Lightsource’s founder, Nick Boyle. It changed its name to Lightsource bp when bp bought a 43% shareholding. So far it has developed 5.4GW in 17 countries (enough to power 5m homes). They have a target of 25GW by 2025. Lightsource bp develops and builds projects. Often the projects are simply bought after being established by others. It will also manage them afterwards. It will often continue to own them but is willing to sell an asset. Some examples:
BP Pulse Since 2019 bp has almost doubled its EV charging points to more than 13,000 worldwide. The managers see enormous growth potential in both charging and shops/stations, what it labels “convenience”, with plans to double 2019’s earnings from convenience and mobility to $9 - $10bn in 2030. By then there will be more than 100,000 bp charging points. Already almost half of bp’s EV charging points are fast or ultra-fast. It also supplies charging points to fleet operators and expects this business to increase 100-fold by 2030. EV charging has been loss-making as it invests heavily in expansion and is not expected to be profitable until 2025. Convenience sites amount to 20,500 currently, with 2,700 of those regarded as “strategic convenience sites” meaning a “food for now and food for later” offering, such as M&S Food stores (at 300 sites). Murray Auchincloss, FD, 3 Nov 2021: “if you wanted to measure returns the general statistic we hold is, if you get 10% utilisation on a faster charger, you’ll make a 10% return. That’s just for pure electrons themselves. It’s about convenience as well. And when somebody goes to charge their car, they spend probably 8 minutes, as opposed to 4 minutes. And hopefully they come in and get a nice cup of Wild Bean coffee and a sandwich and that will certainly enhance those returns.” Bp Pulse has the UK’s largest EV public charging network and is to expand its ultra-fast charging (UFC) infrastructure across the UK, with a series of new EV-only hubs. Charging around 50p per KWh The charging hubs will play a key role in helping to achieve bp pulse’s aim to double the size of its network in the UK to 16,000 charge points by 2030, with a particular emphasis on ultra-fast chargers. The total amount of charging on the bp pulse network is set to grow 30-fold by 2030. bp and Volkswagen Group have agreed to a strategic collaboration, with plans to develop ultra-fast charging (UFC) at bp retail sites in the UK, Germany and elsewhere in Europe. The partnership would give EV drivers greater confidence in being able to access nearby, reliable, quality charging options. bp estimates that approximately 90% of people in the UK and Germany live within a 20-minute drive of a bp or Aral site. The network would be integrated into VW’s cars, making finding and paying for charging easy. It would also be available for other EV customers, improving access to UFC more widely. bp pulse for commercial operators. For example, Uber drivers in London can now access dedicated fast chargers in the heart of Central London. The new multi-charger hub on Park Lane already has 10 rapid 50kW chargers, with a further 12 being added soon. bp intends to open hundreds of similar hubs across London and other UK and European cities by 2030. Aral This is bp’s market-leading fuel retail brand in Germany. It has begun the roll-out of ultra-fast charging points at its retail sites. Now operating under a new name, ‘Aral pulse’. It already has 500 ultra-fast chargi........
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Gas
Production of natural gas in liquid form by bp is about 0.1 million barrels of oil equivalent per day. It intends to double output by 2030. Output of natural gas is over 5,000 million cubic feet per day. For comparison, the UK consumes about 7,700 Cub ft/day. Bp obtains its gas from a wide geographical area – see table. Sources of gas 2021 UK US Canada S America Africa Asia Aust Natural gas liquids produced (thousands of barrels of oil equivalent per day) 5 70 0 4 7 2 Natural gas (millions of cubic feet per day) 236 1,197 2 1,260 1,332 1,279 0 Examples of activity:
The managers of bp plan to invest in “transition growth businesses” (the green stuff) up to 40% of total capex by 2025 (to around $5bn), and to 50% by 2030. This is an increase from about $2 - $3bn today. A large part of that will be wind power. The company is planning to have 50GW of renewable generating capacity by 2050, and “remains confident of achieving 8-10% levered returns for those investments” (bp Update on Strategic Progress 8 Feb 2022) Renewables (wind, solar, hydrogen, bio-fuels) statistics 2020 2021Feb 2022 Renewables installed in year, GW (1 GW supplies electricity for roughly 1m homes) 1.5 1.9 Developed renewables (solar + wind) to FID, final investment decision, GW 3.3 4.4 Renewables pipeline America, GW 6.3 16.2 Renewables pipeline Asia Pacific 0.8 1.4 Renewables pipeline Europe 3.7 5.3 Renewables pipeline Other 0.1 0.2 Pipeline by technology - Offshore wind 2.2 3.75.2 - Solar 8.7 19.4 To put the numbers into context, the UK generates 21% of its electricity offshore, enough to power 10.8m homes (about 10 GW). One rotation of an off-shore wind turbine will power a home for a day. The UK Government intends to greatly increase wind power to 50GW, and bp are well placed to supply a good proportion of that power. Over the last five years there has been a 65% reduction in capital costs for offshore wind. Irish Sea The bp-EnBW partnership in 2020 was awarded 3GW (1.5GW net to bp) in the Irish Sea for 60 years (Morgan and Mona) East Coast of Scotland Awarded 2.9GW in 2020 United States offshore In 2020 bp teamed up with Equinor to develop offshore wind projects with four assets in two existing leases on the US East coast. Bp invested $1.1bn for a 50% share in Empire Wind lease (2GW) and Beacon Wind (2.4GW). The JV signed a 25 year purchase and sale agreement with NY State Energy to take 2.5GW of the power Off Aberdeen Leases were won in the 2022 round of auctions by the bp-EnBW JV for a fixed foundation site 60km off Aberdeen, to generate 2.9GW (The Marven project). Aberdeen is to become bp’s global operations and maintenance centre of excellence for offshore wind. Investments include infrastructure ports, harbours and shipyards, including four ships to support EnBW-bp’s wind projects across the UK. Japan Marubeni/bp partnership for offshore wind, with bp buying a 49% stake in the proposed project. Other projects could follow as Japan was targeting 10GW of offshore wind by 2030 and 30-45 by 2040 – these might be increased after Ukraine-Russian war. The next newsletter looks at bp's other green businesses In 2020 bp retired its time-worn classification of its activities into “upstream” and “downstream”. In its place it now has four business groups:
The following table gives some impression of the relative weights in terms of sales and replacement cost earnings. There was a dramatic fall in overall sales in 2020 when fossil fuel prices were low; then a strong bounce back in sales of oil products and gas in 2021. Oil Most of bp’s oil is refined in-house resulting in much larger external oil product sales than crude oil sales. Turnover of oil products and profits from oil crude and products varies tremendously from year to year depending on commodity prices. The group is in the middle of a major divestment programme which means between 2020 and 2025 it’ll sell off around $25bn of assets (bp’s MCap is $100bn), mostly oil and gas fields and facilities. Already $15.5bn has been raised with another $2 - $3bn expected in 2022. However, this does not mean that oil and gas are being abandoned. About $5bn per year is spent on oil capex and another $3 - $4bn on gas capex; and $1 - $1.5bn on refining and trading capex. So oil and gas still accounts for the bulk of the annual $14 - $16bn Group capex. That makes sense given the expert projections for global oil demand being stable for many years yet. The world consumes around 100m barrels per day (bp contributes about 2.5m b/d), and the industry needs to invest to offset the normal 5m-6m b/d normal rate of field decline. While oil and gas exploration and development is less than it has been in the past it continues, but with a greater emphasis on higher returns. Bernard Looney, CEO commented on his continued commitment to oil and gas in December 2021, “We brought on seven [O&G] projects this year, and will bring on projects next year, and the year after that. We will start up new oil fields, but only ones that have the best carbon intensity, only ones that have the best economics, the shortest paybacks, the highest returns…oil and gas will continue to be needed…and we will use those cash flows to help us to make the transition”. Despite this commitment, Looney says that net-net production of O&G will go down by 40% through this decade; 20% by 2025, 40% by 2030. The 2020 Annual Report described the shift of resources within the company: “As part of our net zero ambition, we aim to increase the proportion of investment we make into our non-oil and gas businesses. We plan to increase investment in low carbon from around $750 million in 2020 to $3-4 billion by 2025 and to around $5 billion a year in 2030 [total group capex is expected to be $14 - $16bn per annum through to 2025]. The aim is to be net zero across its entire operations on an absolute basis by 2050 or sooner…to be net zero on an absolute basis across the carbon in its upstream oil and gas production by 2050 or sooner… disciplined investment to support growing returns and to focus on highest-quality barrels…high-grading of the portfolio; plans and expectations that bp will not undertake exploration activity in new countries…Overall, bp transition and low carbon capital expenditure in 2020 was around 20% of the capital mix, and by 2030 we expect it to be as much as 50% of our capital expenditure” It is thought that the breakeven oil price for bp is $40 per barrel. With oil prices more than double that the company generates an enormous amount of cash. Tomorrow we'll look at the gas and wind energy parts of bp. Following a strict caution-first value investing approach I sold a lot of shares before and during the first Covid wave. The pile of cash was very useful later in 2020 and 2021. The shares bought in those years have generally risen nicely – see first table.
Since the start of 2022 I’ve sold out of a number of companies so as to have about one-third of the portfolio in cash – a comfort in these troubled times with potential for inflation-induced or war-induced recessions (see newsletters written 3rd – 16th February). The majority of the cash is expected to be invested in property abroad to give our family more options in a Putin-crazed world, but a goodly proportion will be looking for a home in deep value shares in a period of extreme flux. A list of all the shares I bought in the crisis (Newsletters published at the time of each purchase set out my rationale for buying) Company Purchase date Purchase price Divs to 31.3.22 Price 31 .3.22 Return to 31.3.22 Smiths News 18.3.20 £0.151 1.15p £0.338 131% Character 5.6.20 £2.52 20p £5.70 134% McCarthy & S 1.10.20 £0.718 0 Sold 7 Dec 2020 £1.185 65% Cap&Counties 6.11.20 £1.032 0 Sold 19 Aug 2021 £1.743 69% Dewhurst “A”11.11.20 £5.94 23.25p £7.00 22% MS Inter 16.12.20 £1.292 10p £2.60 109% Wynnstay 29.12.20 £3.405 15p Sold 24.3.21 – 3.2.22 £5.58 68% Lloyds Bank12.3.21 £0.4169 1.24p £0.4708 16% J Smart18.3.21 & 24.3.21 £1.253 3.22p Sold 7 Feb 2022 £1.575 28% Fletcher KingFeb20–May21 £0.3265 0.5p Sold Sept 2021 – Feb 2022 £0.40 24% Orchard Funding 7.6.21 £0.568 3p £0.52 -3% Caffyns 22.6.21 £4.65 7.5p £5.00 9% Highcroft 22.7.21 £8.75 22p £9.50 11% Town Centre Sec 10.8.21 £1.426 1.75p Sold 2 Feb 2022 £1.581 12% bp 26.1.22 £4.006 4.1595p £3.78 -5% AVERAGE 46% Longer run performance Nine years ago that I left a tenured professorship to concentrate on investment. Back then the FTSE 100 was around 6,600. It is now 7,550 – a slow rise. In addition, there have been dividends of around 3% per year. I believe the numbers in the tables below show that I have outperformed, which is quite a relief given the salary and security sacrifice I made nine years ago. The tables display the results (so far) of all the shares bought for the portfolios I’ve been writing about in my newsletters. The comments I made at the time explaining the rationale for each investment are available for you to read in older newsletters - there is nowhere for me to hide from my appraisals I made three, four or seven years ago – all the errors of omission and commission are there in broad daylight. I present the returns after taking the hit on broker costs, stamp duty and bid/offer spread. (Some of you have joined us recently so, in case you are not familiar with them, I briefly describe the criteria for my portfolios following the portfolio performance tables.) The 2013 Net Current Asset Value, NCAV, portfolio Company Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 French Con. 25.7.13 £0.3047 zero Sold July 2015 £0.4378 44% Caledonian T 25.7.13 £0.70 zero Sold April 2020 for £1.391 99% Fletcher King 6.8.13 £0.30 14.25p Sold June 2016 for 46p 101% Northamber 22.8.13 £0.287 1.6p Sold Oct 2016 £0.303 11% Titon 5.9.13 £0.379 6.5p Sold May 2016 £1.06 197% Mallett 12.11.13 £0.7682 12.7p Sold Nov 2014 £0.60 -5% AVERAGE 75% The 2014 NCAV portfolio Company Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 Holders Tech 10.10.14 & 3.11.14 £0.47 1p Sold March 2017 £0.33 -28% Airea 4.11.14 £0.1195 0.9p Sold Sept 2016 £0.309 166% Northamber 17.11.14 £0.4265 0.7p Sold Oct 2016 £0.303 -27% Caledonian T 30.12.14 £1.39 zero Sold April 2020 £1.391 0 AVERAGE 28% The 2015 NCAV portfolio Company Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 PV Crystalox 15.1.15 £0.122 zero Sold Dec 2016 £0.237 94% Arden Partners 1.9.15 £0.422 1p Sold May 2018 £0.364 -11% Northamber 4.9.15 £0.443 0.4p Sold Dec 2016 £0.303 -31% AVERAGE 17% The Buffett-style portfolio This type of share is rarer than the others, and so I combine all years. Company Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 Dewhurst 9.4.14 £3.18 70.5p Sold February 2020 £7.217 149% MS International 9.10.19 £1.723 13.50p £2.60 59% Character 20.1.20 & 5.6.20 £2.811 28p £5.70 113% Dewhurst 11.11.20 £5.94 23.25p £7.00 22% MS International 16.12.20 £1.292 10p £2.60 109% AVERAGE 90% (I bought some more of Dewhurst in June 2014 at £3.11, December 2014 at £3.75, November 2017 at £5.46, February 2019 at £5.54 and April 2019 at £5.64. These were sold Feb 2020). Modified price earnings ratio portfolio 2015/16 Company Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 Haynes 11.2.15 £1.159 33.5p Sold 2.10.19 £2.9175 181% AGA 11.3.15 £1.002 zero Taken over June 2015 £1.456 45% Hogg Robinson 10.4.15 £0.4709 2.37p Sold June 2016 £0.656 44% MS International 3.7.15 £1.86 46p £2.60 65% BHP Billiton 24.9.15 £10.43 127p Sold May 2018 £16.90 74% TClarke 5.11.15 £0.7916 13.61p Sold Feb 2020 £1.1215 59% Premier Farnell 8.4.16 £1.222 3.6p Taken over 20.6.16 £1.632 36% AVERAGE 72% The AGA holding was doubled 30 April 2015 at a price of £0.9466. Modified price earnings ratio portfolio 2017 Company Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 Braemar 28.6.17 £2.848 20p Sold June 2018 £2.639 0% Caffyns 10.8.17 £5.012 52.5p Sold July 2020 £2.389 -42% Connect/Smiths News 27.9.17 £1.046 11.95p £0.338 -56% MS International 14.11.17 £1.84 30p £2.60 58% AVERAGE -10% The 2017/18/19 NCAV portfolio Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 Caledonian Trust 7.11.17 £1.23 zero Sold April 2020 £1.391 13% J Smart 30.1.19 £1.13 4.14p Sold Mar/Apr 2020 £1.101 1% Northamber 6.12.19 £0.504 0.3p Sold Mar 2020 £0.5717 14% AVERAGE 9% More Caledonian Trust shares bought in February 2019 at £2.29. More J Smart bought 30.4.19 at £1.16 The 2018/2019 modified price-earnings ratio portfolio Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 Connect/Smiths News 14.6.18 £0.285 5.25p £0.338 37% N Brown 17.8.18 £1.42 9.93p Sold Sept 2021 £0.557 -54% Spaceandpeople 31.10.18 £0.224 0.5p Sold Dec 2020 £0.128 -43% Tandem 2.4.19 £1.59 9.49p Sold Aug 2020 £3.707 139% MS International 6.6.19 £2.22 20p £2.60 26% Character 25.10.19 £3.506 33p £5.70 72% AVERAGE 30% More Connect Group shares bought in February 2019 at 40.86p, March 2019 at 38.29p and May 2019 at 39p. More N Brown bought May 2019 at £1.30. The 2020/21/22 modified price-earnings ratio portfolio Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 Wynnstay 7.1.20 & 29.12.20 £3.33 29p Sold 24Mar 2021 – 3 Feb 2022 £5.58 76% Daejan 5.2.20 £52.90 zero Sold 21 Feb 2020 £79.41 50% Connect/Smiths News 18.3.20 £0.151 1.15p £0.338 131% Lloyds Bank 12.3.21 £0.4169 1.24p £0.4708 16% bp 26.1.22 £4.006 4.1595p £3.78 -5% AVERAGE 54% The 2020/21 NCAV portfolio Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 McCarthy & Stone 1.10.20 £0.718 0 Sold Dec 2020 118.5p 65% Capital & Counties Properties 6.11.20 £1.032 0 Sold 19 Aug 2021 £1.743 69% J Smart 18.3.21 & 24.3.21 £1.253 3.22p Sold 7 Feb 2022 £1.575 28% Fletcher King Feb 20 – May 2021 £0.3265 0.5p Sold Sept 2021 – Feb 2022 £0.40 24% Orchard Funding 7.6.21 £0.568 3p £0.52 -3% Caffyns 22.6.21 £4.65 7.5p £5.00 9% Highcroft 22.7.21 £8.75 22p £9.50 11% Town Centre Securities 10.8.21 £1.426 1.75p Sold 2 Feb 2022 £1.581 12% AVERAGE 27% The return reversal portfolio Purchase date Purchase price Divs to 31 Mar 2022 Price 31 Mar 2022 Return to 31 Mar 2022 Havelock Europa 20.5.15 £0.14609 zero Sold Dec 2016 £0.0915 -37% AVERAGE -37% Brief description of criteria for the portfolios Shares are allocated to portfolios designed around ideas flowing from research conducted when my PhD students and I asked the question “what works in investment?” These investigations were often inspired by the ideas of great investors such as Benjamin Graham. More detail on these ideas is presented in earlier posts (if you put key words into the search box those Newsletters will appear). Net current asset value, NCAV, criteria
Return reversal
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Glen ArnoldI'm a full-time investor running my portfolio. I invest other people's money into the same shares I hold under the Managed Portfolio Service at Henry Spain. Each of my client's individual accounts is invested in roughly the same proportions as my "Model Portfolio" for which we charge 1.2% + VAT per year. If you would like to join us contact [email protected] investing is about making the right decisions, not many decisions.
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