Diary: tre

Gonna try to keep this one short today, as I want to do a bit of prep work for NG. and GFS.

TRE: Trading emissions - Financial Services - 49.5p/£124m
UK comedian Bruce Forsyth once quipped: "I'm not a fan of alternative comedy; either something is funny, or it isn't". And so it it is with "alternative energy": either it makes economic sense, or it doesn't. What it does:

Trading Emission PLC (TEP) is a closed-ended investment company. The Company operates in environmental markets, seeking to be involved in projects that reduce greenhouse gases, either as a purchaser of carbon credits, or as a financier or an owner of such projects. The Company also owns shares of companies that provide services, develop and / or own projects and trade in environmental markets. The Company has three segments: the carbon portfolio, private equity investments, and cash and other assets. The carbon portfolio further divided into carbon loan and commercialization.

You'll know I'm not a fan of alternative energy projects.  TRE was floated in April 2005, and since then has lost 51% of value, compared with a rise of the Footise of 13%. Mid-June 2011, TRE was trading at 108p, whereupon the share price plummeted on the following news:

Trading Emissions plc announced previously that it had instigated a formal sales process for its portfolio of private equity assets (PE Portfolio). Additionally, the Company announced that it had also received expressions of interest for its carbon portfolio. Indicative offers have now been received for both the PE Portfolio as a whole and for individual assets and, having considered these with the intention of maximising returns to shareholders, the Board will now pursue an individual asset realisation strategy with regard to the PE Portfolio. In addition the Company can confirm it has received a number of bids for its carbon portfolio. This process is entering its latter stages. The Board is determined to finalise these negotiations as soon as possible and will provide further updates to shareholders in due course. Proceeds from the sale of either private equity or carbon assets will be returned to shareholders as a matter of priority by way of the most appropriate method of capital distribution determined by the Board, subject to retaining sufficient working capital to enable realisation of the remaining portfolio. Proceeds from the sale of assets within the PE Portfolio and any other remaining assets will be distributed to shareholders at the appropriate time.

I'm not familiar with the company, but it looks like we've got a situation where the company was set up to trade carbon emissions in 2005 under a new investment theme, and it hasn't worked out.  An article in the FT seems to sum things up neatly:

The chairman and three of the remaining five directors of Trading Emissions are to step down following talks with shareholders as the clean energy and carbon emissions project investor warned it would pass on a full-year dividend amid falling prices for carbon securities.

The company added that chairman Mr Eckert, along with Malcolm Gillies, Nigel Wood and Bertrand Rassool will resign at the company’s annual meeting in December “following consultation with certain shareholders”.

This last quote is very very interesting.  Because I'm going to bet you 10 quid that I know who those "certain shareholders" are. According to an RNS dated 12-Sep-2011, Laxey Partners notified the company that it had taken its interests in the company to above 6%. The point about Laxey partners is that they are known as activist investors who try to unlock value. For FY2010, TRE announce that its NTAV was 135pps. Its current share price is 49.5pps, which is a huge discount to asset value. The market cap is £124m, and TRE is sitting on net cash of £118m. Its NCAV is 153m, and additionally it has "other non-current assets" of £131m - basically investments which should realise some resale value.

I've got the warm tinglies on this one, and feel that this could be an excellent special situation. Despite the horrid business, the company is trading at a PTBV of 0.37, the market cap is almost completely covered by cash, so any realisation of the portfolio is going to be a huge boost. You'll also have Laxey Partners making the best efforts they can to maximise shareholder value. As Monhish Pabrai would say: "heads I win, tails I don't loose very much". Alas, massive spread on this one.