3i Infrastructure has gone into the methane business. The investment trust yesterday announced a deal to buy the landfill gas division of Infinis from funds run by Guy Hands for £185 million.
Infinis generates electricity by burning the methane that bubbles out from ancient banana skins, chicken carcasses and garden waste slowly rotting beneath 128 landfill sites across Britain.
It’s a reliable earner. The sites have mostly been closed to new rubbish because of environmental concerns, but the gas keeps coming and will do so for years, though it will dwindle gradually. The half-life for methane production averages about 12 years across the portfolio.
In the meantime, after refinancing its debt, the Infinis division should produce a tasty cash yield of around 10 per cent. That should help to underpin 3iN’s growing dividend. It will also help to rebalance the portfolio towards immediate cash generation and provide a useful counterbalance to the lower-yielding, “growthier” assets bought in recent years, such as mobile phone masts and airport handling equipment.
There are risks. A fall in the wholesale price of electricity is the biggest. Another is the ending in 2027 of inflation-linked subsidies under the Renewables Obligations rules for power generated from landfill gas.
Eventually, however, the Infinis equipment, which gives access to the power distribution grid, could be used for other energy sources, such as conventional gas or industrial-scale battery storage. These are not necessarily entirely wasting assets.
This is a big bet for 3iN. The investment accounts for 11 per cent of net assets. It also more than uses up the remainder of the £385 million of fresh equity raised in the summer, leaving the company with net debt of almost £100 million.
That raises the question of whether it opts for another share issue at some point, or chooses to sell an existing asset or two. A fresh equity-raising could depress the shares in the short term. They are pretty pricey, trading on a 19 per cent premium to net assets as of March, high by historic standards (a more up-to-date NAV figure is due this week). However, 3i, which manages the trust, is unlikely to do anything too risky: it owns 34 per cent of the business. The shares are worth buying, although cautious buyers should wait until after the interim figures on Thursday.
My advice Buy
Why Wide spread of cash-generating assets and an attractive 3.9 per cent yield
WPP
That WPP topped the FTSE 100 leaderboard yesterday said more about the gloom in the advertising world than the company’s third-quarter numbers. Publicis and Omnicom have made cautious noises in recent weeks, so WPP’s solid but unexciting numbers were welcomed. North America was stronger than expected, although the market research division was weak.
Ignoring currency effects and acquisitions, underlying revenue growth came in at 3.2 per cent in the third quarter, a slowdown on the first half. Given Brexit nerves and Trumpxiety, however, this was seen as not at all bad.
It doesn’t take much for a chief executive to trim the marketing budget. Inflation is low. They have little pricing power. Tesco’s Marmite victory over Unilever was telling. Marketing directors, whose job life expectancy is two years, are hardly in lavish mood, either, but Sir Martin Sorrell’s formula keeps churning out the profits growth. At the nine-month stage, the operating margin is up by 0.3 percentage points and on target for the full year.
Bias towards acquisitions in Asia Pacific, Latin America and other faster-growing emerging markets seems to be the right call, as is the focus on new media. Sir Martin’s emphasis on “horizontality” (cross-selling to global clients across borders and industry categories) is also paying off.
The shares, at £17.78, trade on a multiple of 16 times’ full-year earnings for 2016, dropping to 14 for 2017. The expected yield is 3 per cent.
My advice Buy
Why Sorrell formula works well and weak sentiment offers a buying opportunity
Centamin
Centamin investors have had to be patient. The shares are still below their peak of six years ago, but the goldminer passed two significant milestones yesterday.
First, it has begun to share profits with the government in Egypt, where Sukari, its only producing mine, is located. That should lower the political temperature and help it to fight off a legal challenge to its concession there.
Second, it has recovered more than $1 billion of capital spending, thanks to throwing off cash by the bucketload. It produced almost 149,000 ounces of gold in the third quarter, up 6 per cent on the previous quarter and 41 per cent on the third quarter of 2015. It now expects full-year production at the upper end of guidance of 520,000 to 540,000 ounces and some analysts believe it could smash through that top end. Meanwhile, mine efficiencies are improving, bringing the all-in sustaining cost of production down from $669 an ounce to $644. With gold north of $1,270 per ounce, that looks relatively comfortable.
However, Centamin remains vulnerable to having only one producing asset in a politically volatile country. Hopes of other mines in Burkina Faso and Ivory Coast are years away, at best
My advice Hold
Why Promising progress in mine offset by political risk
And finally...
Proteome Sciences has raised £3.3 million to develop its range of protein biomarkers, technology that can help to indicate the presence of disease in a patient. The deeply discounted subscription and placing was priced at 5p a share. Jeremy Haigh, the new chief executive, paid £20,000 to buy 400,000 of the newly issued shares. The AIM-listed biomedical tiddler believes that its technology can help in the treatment of cancer, Alzheimer’s and strokes. The shares, which traded as high as 70p in 2013, fell 38 per cent to 5½p.
