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Managing the Transition to Clean Energy – Q&A with James Parsons

Managing the Transition to Clean Energy – Q&A with James Parsons

Q     So much seems to be happening globally around the energy transition at the moment, from big companies such as the oil majors to the micro cap space. How do you see the transition at the moment?

It has been an exciting time to be involved in the industry! I think we shall look back at this period at some point in the future and realise we were living through a rather unique part of our history, especially in terms of the energy space.

There is undoubtedly growing momentum in the transition/clean tech/renewable arena this year already, and increasing investor interest, too.   Just as two examples which I am close to… we raised £4.5m last week in Coro Energy as we deepened our renewables footprint through a second SE Asia-focused clean tech developer acquisition.  At Corcel we also recently raised funds to help progress our Burwell Energy Storage project in the UK, one of our key battery storage assets supporting the UK’s push for electrification.

So whilst you inevitably see rather aggressive “greenwashing” by the bigger players, attempting to cover the fact that they inevitably still have their roots firmly in fossil fuels, the smaller, more nimble players are able to adapt much quicker (and follow the money!).

My sense is this is an irreversible trend with companies looking to future-proof themselves and increase their relevance to increasingly ESG focused investors.

Q     You were one of the early adopters in transitioning micro caps over to the clean energy space.  It looks like this started with your role at Corcel plc, a Battery Metal explorer and developer, in 2019 and has been further re-inforced with Coro Energy initiating a pivot to renewables last year and Ascent plc recently announcing an ESG Metals strategy.   I guess this all reflects your own personal belief in the carbon transition.  But do you see any future for Oil and Gas?

There is, to my mind, no doubting the remaining importance of hydrocarbons to the energy mix, and their necessity for some time to come, especially existing developments or producing assets where the hard work to find them has been done, and their deployment provides time for other energy technologies to mature.  This is particularly true for gas, which remain an obvious bridging fuel for near term gains in low carbon energy, and as a back up for intermittent solar and wind power.

I am however personally very clear that oil and gas now have a finite place in the forward provision of energy, and we must all engage in the progression of alternatives as practically, economically and quickly as possible if we are to deliver on targets to ameliorate the impact on the climate.

Q     How quickly can you build scale with firms like Corcel, which clearly have an interesting platform on which to grow?

Corcel is, in my view, one of the “yet to be recognised” early leaders of the energy transition in the micro cap space.  We operate at the intersection of battery metals mining and its end use in energy storage with a portfolio focused on first acquiring battery metal resources prior to the widely expected structural price hike and secondly generating low risk cash flow from energy storage and trading via batteries.

If we were directing a movie of the 2020/21 energy landscape, I would suggest a suitable working title to be “The Rise of Batteries”.  Corcel is right in the middle of that space and looking forward to playing its part!  Since 2019 we have focused on sorting out the inherited legacy issues, and then turned our attention to building the strategic foundations for the future – this is swan paddling stuff, with lots of work going on unseen but we are really making progress now.   The focus at the moment is on achieving shovel ready status at Burwell, the battery storage site in Cambridgeshire, on securing a Mining Lease at Mambare, our first PNG Nickel deposit, and on unlocking Wo Wo Gap in conjunction with RMI (an ASX listed company where Corcel has a significant debt position).

So, scaling up is critical and that will come as we both broaden and deepen the portfolio – however, I really want to see some of the inherent NAV we have already created reflected in our valuation before we make the next big move.  I don’t expect that to be too long!

Q     Tell us about your views on mining.  Following the pivot of Ascent to ESG Metals, it seems to play an increasingly important and strategic part in your work, doesn’t it?

It absolutely does and mining was a relatively new space for me, so it has been hugely interesting to get up to speed on the industry and particularly to dovetail it with my own ESG agenda.  At Ascent, we have now formalised our ESG Metals strategy as one of the emerging “special situations”.  We see huge opportunities in reclassifying, through highly efficient recovery techniques, stockpiled surface mining waste (previously viewed as a liability for mining companies) as a valuable asset for reprocessing and commercial sale.  The larger producers have historically seen tailings as sub-commercial so our opportunity here is to provide strong cash returns without exploration risk and with only a modest upfront capital outlay, all whilst supporting a key ESG objective of materially lowering global waste.

Q     It is fascinating to watch both the companies you are involved with – and you personally –  plot the course through the energy transition.  Do you think investors can still expect to see the “multi bagger” type returns in the ESG energy space?

The beauty of the extractive industries has always been the binary nature of the outcomes and the resulting risk / reward balance (ie if you “strike it big” investors can see immediate significant returns).   It is absolutely true that clean energy technology normally has a much lower risk and more modest return profile. However there are still ways to secure the upside exposure, such as being a first mover (eg as Ascent is in ESG Metals) or taking strategic bets on the macro fundamentals and forecast supply crunches (eg Corcel’s positioning with significant Nickel deposits in PNG).   I’m very pleased with the ESG portfolio I am involved with and excited about where these micro caps will be a few years from now.

Intercontinental Hotels – Strong On Jargon, Rev Par And Growing Rooms

Intercontinental Hotel Grp. IHG delivers a jargon laden third quarter update indicating that it is very pleased with itself. Net rooms grew at 4.1%, the strongest since 2010 and it is accelerating brand growth around the world. Rev Par 2.3% in the quarter and  2.2% for the year to date.Europe was particularly strong with rises of 7.1% and 6.6% respectively, slightly behind Greater China which led the way, whilst for once the US lagged. The financial position of the company is robust.

DX (Group) plc DX admits it has gone through a particularly challenging time and turned last years profit of £11.5m into a reported loss before tax of of £82.3m. for the year to the 30th June. Exceptional items of £80.7m. included everything but the kitchen sink, from goodwill impairment of £72.4m to provisions for property delapidations, professional costs and senior management departures. Adjusted earnings per share or the year collapsed to 0.1p from last years 4.9p. Now the company is focused on its operational and financial under performance, new business has risen by 20%, major new contracts have been signed and a new leadership team has been appointed. So investors who believe in bottom fishing, get your hook, line and sinkers out and see what you can catch.

Octagonal plc OCT is extremely pleased with its record revenue and profits for the six months to the 30th September, during which revenue grew by 17.5% and net profit by 40%. The pleasure is added to by the fact that  the second quarter is usually impacted by reduced summer trading and revenue negative currency movements had an impact on revenue.

Ascent Resources AST expects that the long awaited process of the re certification by the Croation authorities of the export pipeline, which will allow export production to commence, is now awaited. An exchange of signatures can now be expected within a short time frame.

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Corporate news review Thursday 28th September 2017

Air Partner AIP reports gross profit up 12.2% at £18.1m, with underlying PBT up 34.4% at £4.1m. AIP says it enters the next six months with optimism that FY expectations will be met.

Ascent Resources AST interims – recompletion and flow testing of well Pg-10. Construction of the new pipeline connection at MRS Lendava required to export gas production to Croatia. Refurbishment of separation equipment at the existing CPP (a gas separation facility) owned and operated by partner Petrol Geoterm.   Raised £2.9m through PrimaryBid and reduced debt by almost £6m through loan note conversions. Post Period Highlights: Now selling gas, with reported revenues for the first time since 2013 and are now virtually debt free. The Company is now in a strong position to look to expand our operations into new territories and face the future with increased optimism.”

Chapel Down Group CDGP interim year on year sales up 22% to £4.977m and EBITDA up to £235k (H1 2016: £93k). CEO Frazer Thompsonsays the group has a fantastic team of people, and are excited about the prospects for the future.

Clinigen Group CLIN reports FY adjusted gross profit up 22%, adjusted EPS up 25% to 41.8p and strong cash flow with cash generated from operations of £54.7m (2016: £49.4m). Net debt substantially decreased by £33.1m to £35.0m, and the FY divi is up 25% to 5.0p.

CMC Markets CMC pre-close trading update – profitability in H1 2018 is significantly higher than the same period in 2017 with both net operating income and revenue per client higher (and marginally higher than H2 2017), driven by increased client volumes. Regulation remains a key focus, and despite profitability in H1 2018 being significantly higher than the same period in 2017, CMC remains cautious about the future outlook.

Euromoney Institutional Investor ERM pre-close trading update ahead of FY results. Since issuing its trading update on July 21, 2017, overall trading has continued in line with the board’s expectations for the financial year.

Fox Marble Holdings FOX says revenues from the sale of marble products for the six months to 30 June 2017 increased 26% to €329,607. The order book is currently at €5.6m.


Telit Comms TCM updates on trading and narrows its financial guidance such that it expects revenues of $390m-$400m for the financial year to 31 Dec 2017 (2016: $370.3m) and adjusted EBITDA is expected to be $44m-$48m (2016: $54.4m) before one-off restructuring costs which are expected to be incurred as the review is implemented. Telit expects to see, as normal, significant cash generation during H2 and expects to satisfy all financial covenants which are imposed upon it when tested as at 30 September 2017.

NWF Group NWF AGM statement: “Trading has been ahead of the same period last year and in line with the Board’s expectations, with net debt reflecting the normal seasonal fluctuations. “The Board’s outlook for the financial year remains in line with its expectations and we continue to focus on development opportunities, both organic and through targeted acquisitions.

Corporate news review Friday 4th August 2017

Ascent Resources AST updates on progress with its Petišovci project in Slovenia, and says the installation of the necessary infrastructure to accommodate export production has now been completed. As a result, recertification on the Croatian side of the border is moving towards a positive conclusion.

Merlin Entertainments MERL reports a 0.7% increase in H1 PBT to £50m, on revenues up 19.4%. As the company approaches the peak trading period, it is making good progress across most businesses, but remains cautious on the near term outlook for UK attractions, reflecting the recent terror attacks. Despite this trading uncertainty, Merlin anticipates delivering FY profits in line with current expectations.

Millennium & Copthorne MLC says half-year revenues increased by 16% to £485m, but cautions that there is continuing pressure on the profitability of hotel operations, particularly in North Asia and New York.

Pearson PSON reports a 1% increase in half-year sales to £2,047m, with a statutory operating profit of £16m (H1 2016: £286m loss. The group declared an interim dividend of 5p (2016: 18p) and plans a share buyback of £300m following the announced reduction and recapitalisation of the stake in PRH.

RPS Group RPS reports a 35% hike in interim pre-tax profits to £27.2m, with an equivalent increase in adjusted EPS to 8.71p (2016: 6.44p). Net bank borrowings reduced slightly to £93.4m (June 2016: £95m), and RPS declared a 3% increase in the dividend to 4.80p. CEO Alan Hearne said the strong first half results “enable us to anticipate modestly exceeding market expectations for the full year”.

Royal Bank of Scotland RBS reports H1 operating profit before tax of £1,951m. Adjusted return on equity across PBB, CPB and NatWest Markets was 14.1% compared with 10.9% in H1 2016. Common Equity Tier 1 ratio increased by 70 basis points in the quarter to 14.8%, and remains ahead of the stated RBS target of 13%. RBS retains 2017 FY financial guidance and medium term financial outlook as provided in 2016 Annual Results document.

S & U SUS says trading at motor finance subsidiary Advantage continues at record levels, while Aspen Bridging is proceeding cautiously and gradually establishing itself in the bridging market.

YouGov YOU says trading for the year ended 31 July 2017 is now expected to be ahead of the Board’s previous expectations. YouGov reports another year of revenue growth well ahead of the global market research sector and has maintained the performance trends reported in the first half of the current financial year.

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