BHP – Production update
BOCH – Launch of share buyback
BT/A – Disposal rumours
GRP – 10 year corporate PPA
GSK – Pipeline progress
IDS – Kretinsky approach
PCA – Disposals and tender updates
WDS – Q1 report
WDS – Q1 report
Woodside Energy released its first quarter (end-March) report earlier today. The report revealed a 7% q/q reduction in production (to 44.9 MMboe) which combined with lower realised prices to produce quarterly revenue of $2.97bn, -12% q/q. The Group continues to execute on its three major energy projects, with Scarborough (Australia) 62% complete (first LNG cargo is expected in 2026); Sangomar (Senegal) is 96% complete with first oil targeted for mid-2024; Trion (Mexico) continues to progress; while for the new technology projects WDS is continuing discussions on offtake from the H2OK project and progressing commercial agreements for the Woodside Solar Project. Corporate highlights in the period include the sale of a 15.1% stake in Scarborough for $1.4bn to JERA and a further 10% sale to LNG Japan for $910m; and the completion of a sale and purchase agreement with Korea Gas Corporation for the long-term supply of LNG to Korea. Looking ahead, WDS is maintaining FY production guidance of 185-195m boe. All in all, the maintained FY production guidance and continued progress on development projects make this a reassuring update. Woodside trades on an inexpensive 15.1x consensus FY 2025 earnings and yields 5.4%.
IDS – Kretinsky approach
The Financial Times reported on Wednesday that International Distributions Services has rejected a takeover approach from 27.5% shareholder Daniel Kretinsky. In a statement, Kretinsky’s EP Corporate Group said it had “submitted a non-binding indicative proposal” to IDS on April 9 which was rejected, although EP Corporate says it “looks forward to continuing to engage constructively with the [IDS] board as EP Group considers all its options”. In a statement released later on Wednesday, IDS revealed that EP’s “preliminary and conditional non-binding proposal” had been pitched at 320p/share. The Board unanimously rejected this, saying it “significantly undervalues IDS and its future prospects”, adding that “the timing of the proposal is opportunistic. It does not reflect the growth potential and prospects of the Company under a new management team, a significant modernisation programme underway at Royal Mail, and the ongoing review by Ofcom in relation to the Future of the Universal Service Obligation”. I agree with IDS’ board when it comes to these points – IDS (and more specifically Royal Mail) has a number of avenues to significantly structurally higher profitability through automation and better matching its distribution network to customer demand (for example, it is currently set up to handle 3x more letter volumes than it actually does). A price of 320p/share values IDS’ equity at £3.07bn, a fraction above the Group’s latest disclosed net assets of £3.0bn at end-September 2023. Earlier today IDS shares were changing hands for 272p, well below the 320p ‘proposal’ level, suggesting the market expects a low possibility of a transaction, at least in the short term. Bloomberg consensus has IDS trading on 11.2x consensus FY (year-end March) 2025 earnings, falling to just 7.7x consensus FY 2026 earnings as earnings continue to rebuild following the resolution of the costly labour relations issues of recent years. I think the stock is very cheap.
PCA – Disposals and tender updates
Palace Capital provided an update in relation to the monetisation of its real estate portfolio on Thursday. Since its last update in February, the Group has unconditionally exchanged or completed on the sale of another five investment properties for £15.3m which, after adjusting for rent incentives, is 3.7% below the September 2023 valuation. Further properties are currently under offer. On the small apartment portfolio in York, since February the Group has completed the sale of one unit for £0.6m and has another five totalling £2.7m under offer, leaving 12 units remaining. These disposals have tipped the Group into a net cash position, pro-forma for this week’s dividend payment, of £19.5m, with the only gross debt remaining being a £8.3m facility fixed at just 2.9% until July 2026. PCA’s Chairman, Steven Owen, said that the Group expects “to announce a significant return of capital to shareholders, likely through a tender offer, in due course and ahead of the [FY results in June]”. PCA last reported net assets of 294p share at end-September, and while there is some downside risk to this, the delta to the current share price (235p) offers a good margin of safety, in my view. The achievement of a net cash position further reduces the risks around PCA. In an ideal world, if the UK rate environment evolves as the market consensus expects, that should be supportive of real estate valuations from here, with (I am hoping!) a tender offer pitched somewhere between NAV and the share price offering a nice balance between liquidity for the impatient and accretion for patient long-term oriented investors.
BHP – Production update
BHP released an operational review for the 9 months to end-March on Thursday. The update revealed that the Group is “on track to meet copper, iron ore and energy coal production for the year”, but weather is having an adverse impact on some of its operations. By commodity, copper volumes are +10%, WAIO had “consistent” production despite heavy rainfall; BMA metallurgical coal guidance for production and costs has been revised lower as a result of “significant wet weather including the impact of two tropical cyclones”; phase 1 of the giant Jansen potash project in Canada is 44% complete, ahead of its initial schedule; and “a decision on the future of [BHP’s] nickel business” will be announced in the coming months. All in all, a negative tone will hardly help near term sentiment towards the stock, although the long-term drivers of demand for its portfolio of future-facing commodities is very much intact. BHP trades on an undemanding 11.0x FY (year-end June) 2025 earnings and yields 5.2%.
GSK – Pipeline progress
GSK announced on Tuesday that the US FDA has accepted its 5-in-1 meningococcal ABCWY vaccine candidate for regulatory review. If approved, a single vaccine providing broad coverage against the five most common groups of bacteria causing invasive meningococcal disease would likely be very well received, in my view. The submission follows a positive Phase III trial in which all primary endpoints were met. This was followed on Wednesday by two further updates from GSK. The first, on Shingrix, outlined how an analysis of long-term data show that GSK’s shingles vaccine continues to provide high protection in adults aged over 50 for more than a decade (vaccine efficacy is 82.0% at year 11 after initial vaccination). Importantly, no new safety concerns were identified during the follow-up period. That should presumably help to push more demand for the blockbuster vaccine, given that shingles affects 1 in 3 people worldwide during their lifetimes. Elsewhere, GSK said that phase III data “show potential” for gepotidacin as a new treatment option for uncomplicated GC “amid growing resistance to existing treatments”, adding that it achieved a 92.6% microbiological success rate “and was non-inferior to the leading combination treatment” (which has a 91.2% success rate). The safety and tolerability profile was consistent with the findings from the phase I and phase II trials. With an 82m new cases globally each year, there is obvious commercial potential assuming the requisite approvals follow. At end-2023 GSK had 71 vaccines and specialty medicines in its development pipeline across Phase I-III/registration. I don’t believe that the potential of this pipeline is adequately reflected in GSK’s low rating of just 9.0x consensus 2025 earnings. The stock also yields 4.1% at the current price.
BT/A – Disposal rumours
Sky News’ well-connected City Editor Mark Kleinman reported on Wednesday that BT has appointed Citi to advise on a potential sale of its Irish corporate unit. BT previously considered a sale of this unit back in 2020. BT sources said that the review of the business, which may or may not result in a transaction, is at an early stage. BT Ireland is said to employ more than 650 employees who cater to a roster of corporate and wholesale (but not retail) customers. At the time of the abandoned 2020 sale, it was said to have a valuation of between €300m and €400m, but it is not clear on whether that is still a useful yardstick. In any event, the unit is likely to be immaterial in a BT Group (£10.4bn market cap) context. Bloomberg consensus has BT trading on just 5.5x FY 2025 earnings and yielding 7.2%, which is very cheap to my mind.
GRP – 10 year corporate PPA
Greencoat Renewables announced on Thursday that it has agreed a 10 year Power Purchase Agreement (PPA) for its Ballybane Phase I wind farm in Cork with Keppel DC REIT. The wind farm has an annual output of 67 GWh, which Keppel DC REIT will purchase all of. This is the latest in a series of PPAs that GRP has agreed, which provides very helpful long-term revenue visibility as fixed price incentive regimes conclude. The outlook for electricity demand growth is strong, supported by new technologies, with renewable players like GRP perfectly placed to benefit from this. Greencoat is very cheap, trading on just 8.2x consensus 2025 earnings and yielding 8.3%.
BOCH – Launch of share buyback
Earlier today Bank of Cyprus announced the commencement of its previously announced €25m share buyback programme. The Group has engaged brokers to repurchase its shares on both the London and Nicosia lines. Shares repurchased will be cancelled. Bloomberg data show that BOCH trades on 5.2x consensus 2025 earnings and 0.63x end-2025 NAV, so the use of excess capital to buy back shares at such a valuation makes heaps of sense, to my mind.
Theodosian Capital 