SIF Folio: TRIG + Pershing Square offers me top US stocks at a discount

Tuesday, Sep 03 2019 by
10
SIF Folio TRIG  Pershing Square offers me top US stocks at a discount

Well this is a bit awkward. You give a stock the elbow one month and a few weeks later it’s back, with a shiny new set of profit figures.

Sometimes the timing of my mechanical sales and purchases isn’t perfect. My sale of The Renewables Infrastructure Group (LON:TRIG) at the end of July is a case in point. Just seven days later, this investment trust issued half-year results that showed half-year profits up by a staggering 174% to £128m.

I’ll review TRIG’s results in brief in a moment. But in short, I’m going to welcome this stock back to the SIF portfolio. However, having written about it so recently, my comments will only be brief. So I think there’s room to consider a second new stock this week.

Two companies are vying for my attention in my screening results that could fit the bill: 

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The one I’m going to consider this week is something completely new and rather different. It’s the FTSE 250-listed arm of US hedge fund manager Bill Ackman’s investment vehicle, Pershing Square Holdings

I’m not really sure if this is a suitable investment for my trading strategy, but it’s interesting for a number of reasons. I’ll explain more below. Let’s deal with TRIG first.

TRIG shows renewable growth

The Renewable Energy Group’s profit growth looks pretty spectacular. You might wonder how an investment trust that owns stakes in wind and solar farms could increase its half-year pre-tax profit from £47m in 2018 to £122m in 2019. 

The short answer is that much of this growth came from unrealised valuation gains on the firm’s assets. These resulted from changes to asset life assumptions made earlier this year. Essentially, a technical review led management to increase the expected operating life of its wind farms from 26 years to 29 years. 

Make of this what you will. But I was reassured to see that the group’s continued expansion was backed by a 29% increase in cash distributions received from its portfolio. These rose to £63m, from £49m in H1 2018. The dividend was covered by cash 1.4 times, which seems comfortable to me for a business of this type.

Management say they are still finding attractive subsidised renewable energy opportunities in European markets. Increasingly,…

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The Renewables Infrastructure Group Limited is a closed-ended investment company, investing in and managing a portfolio of investments in renewable energy infrastructure project companies. Its objectives are to provide shareholders with an attractive long-term income-based return with a positive correlation to inflation by focusing on strong cash generation across a diversified portfolio of predominantly operating projects; to maintain prudent financial management in terms of the approach to cost control, cash management, dividend cover, financing arrangements and foreign exchange and interest rate hedging, and to diversify its investment portfolio to enhance spreading of risk, increase share liquidity and obtain further scale efficiencies, while seeking to enhance Net Asset Value (NAV) per share for investors. Its portfolio comprises 55 investments in the United Kingdom, Republic of Ireland and France. InfraRed Capital Partners Limited is the investment manager of the Company. more »

LSE Price
129.5p
Change
0.1%
Mkt Cap (£m)
1,872
P/E (fwd)
10.6
Yield (fwd)
5.2

Pershing Square Holdings, Ltd. is an investment holding company structured as a closed end fund that makes investments principally in North American companies. The Company's investment objective is to preserve capital and to seek maximum, long-term capital appreciation commensurate with reasonable risk. The Company seeks to achieve its investment objective through long and short positions in equity or debt securities of public the United States and non-United States issuers (including securities convertible into equity or debt securities), derivative instruments and any other financial instruments. The Company invests in various sectors, such as healthcare, industrials/chemicals, consumer products, real estate development and operating, restaurant and financial services. The Company invests primarily in liquid, large-capitalization securities, which under normal market conditions, are readily convertible to cash. Its investment manager is Pershing Square Capital Management, L.P. more »

LSE Price
1564p
Change
0.6%
Mkt Cap (£m)
3,431
P/E (fwd)
7.7
Yield (fwd)
3.2



  Is LON:TRIG fundamentally strong or weak? Find out More »


5 Comments on this Article show/hide all

FREng 3rd Sep 1 of 5
2

I see the appeal of buying major US companies at 18% discount, since UK turmoil should push the pound lower against the dollar and in a US election year one might expect that Trump will find a way to increase US share prices.

But all this information and more is in the market, so why the discount to NAV? There's a feeling of "too good to be true" about PSH.

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Martin Verlaine 3rd Sep 2 of 5
1

The reason why PSH is at such a discount is 1 the portfolio is concentrated 2 Bill A has been quite accident prone and it is unclear  his current leaning to long positions will persist  3 it will take a good period of non controversial investing  for Uk investors to forgive the Valeant and Herbal Life exploits 

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andrea34l 3rd Sep 3 of 5
2

Re Pershing Square Holdings (LON:PSH) I am rather put off morally by the manager being paid a 20% performance fee for delivering a compound return of 14.2%, as well as his performance being very inconsistent.

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Roland Head 4th Sep 4 of 5

In reply to post #509691

Hi Martin,

Thanks for your comment. I agree that Mr Ackman's recent record isn't outstanding. But over the longer term he's proved very able. And the current Pershing Square Holdings (LON:PSH) portfolio looks less controversial than Herbal Life or Valeant, in my opinion. I'm happy to take a (small) chance on it.

Regards,
Roland

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coniston 4th Sep 5 of 5

Have owned PSH for a couple of years& decided to sell a couple of weeks ago on the grounds US looks extended & more importantly to me was the corporate governance saga,where they decided to raise more equity at a big discount.( diluting existing shareholders),it all came across of enhancing their remuneration without consulting shareholders.

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About Roland Head

Roland Head

I'm a private investor, analyst and writer on stock markets, with a particular fondness for free cash flow, dividends and value. My main interests are UK and US stocks. I also have an interest in (profitable) commodity stocks.  I have passed the CFA Level 1 exam and hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based and quantitative approach required for this kind of work undoubtedly influenced my investing style.  I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a very large and now defunct Canadian telecoms firm.  more »

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