DON’T GO LIGHT ON HELIUM
- November 24, 2022
- Posted by: Cheryl
- Category: General
Renergen is a stock to stick with, along with HCI, Grindrod and Sabcap, among others.
As we head towards the festive period, I thought I’d reflect on the year that’s almost behind us.
It had a lot to live up to given the 51% rise in the small-cap index in 2021. Last year saw extreme valuation lows unprecedented in my 25 years covering the sector. Well-run and operationally proficient companies were trading at valuation multiples of three.
Ratings have rebounded but remain attractive. I foresee 2023, like 2022 and 2021, as another year of corporate activity and JSE delistings. On my radar would be stocks I’ve often highlighted in the year, such as Argent Industrial, Bowler Metcalf, Mustek and Santova.
Year to date, the JSE small-cap sector remains the best-performing subsector, ahead by 5.3%, with the mid-cap sector down 1.2% and the all share 1% lower.
These indices belie that there has been a stunning rally in most JSE indices, including the Alsi, since the end of September. In the past weeks the Alsi rallied 15%, the mid-cap sector 10% and the small-cap 6.7%. Much of this rally can be ascribed to the rebound in the Dow Jones Index, which has risen 15.5% since the end of September, pulling global markets with it.
Some of my sector winners this year have had a special-situation significance behind the gain in the share price.
Hosken Consolidated Investments (HCI) is ahead 151% year to date as news that one of its investments, a 10% stake in an offshore Namibian oil exploration block, could have hit it big. HCI has a plethora of recovering investments in hotels, gaming and leisure but it was the oil story that drove the stock and continues to polish prospects. I commented recently on another possible exploration site off South Africa’s west coast that has whispers of oil. At R182.12, I’d hang on to my HCI into 2023.
Ports, rail and logistics counter Grindrod has long been a favourite of mine and IM. I recommended the stocks at 370c back in November 2020 and again at 534c in November 2021. In 2022 the market eventually woke up to the value that has been unlocked by the way the sprawling structure has been cleaned up via asset sales.
The asset sales, the largest of which was Grindrod Bank for R1.5bn, realised R2.5bn. With state rail and ports infrastructure in a mess, the opening up of participation opportunities to the private sector to alleviate bottlenecks further aided Grindrod. At R10.80 I see value in Grindrod to R13 and possibly more.
Sabvest Capital (Sabcap), the small- to mid-cap investment holding company run by Christopher Seabrooke, had one of its best periods in years. The stock has risen 41% to R82.80 as investments have recovered since the pandemic and deals within infrastructure and liquor added new spice to the portfolio of mainly unlisted assets.
Sabcap is a stock any long-term growth portfolio should own to get a slice of the Seabrooke action, and I will be holding my stock.
Finally, there’s Renergen. The stock started the year running 27% to a peak of R43.15 but has since slid to R26.01. Year to date Renergen is down 23%. Much of this decline is due to the derating of the resources sector, which has sagged 18%, and to a general change in the risk appetite of investors.
The Virginia phase 1 liquid natural gas (LNG) production facility is now operational after delays in commissioning. Helium production commenced in early October but was curtailed due to engineering difficulties. This has not pleased the market and the twitterati have slated the stock.
I look past these matters. Renergen is a 20-year project and Virginia phase 2 will start its engineering preparation in 2023 for 2025 commissioning. LNG is being sold to Italtile and soon Consol Glass. Helium remains in strong global demand. I highlighted at the start of 2022 my belief Renergen would seek a Nasdaq listing in 2023; I still believe that.
Renergen is becoming more of an institutional stock and at R26.01, despite the decline this year, I’d ignore the noise, look at the project’s long-term prospects and sit back to enjoy the ride.
Sourcel: Business Day – Anthony Clark