Much good may it do them but the outgoing investment team at Electra Private Equity do seem to be doing a spectacular job of raising money for the quoted private equity fund. Yesterday marked the second sale of an investment in a week, Electra’s stake in Innovia for £106 million. This comes after the sale of Parkdean Resorts, the caravan holiday park operator, from which Electra will receive £405 million.
The investment manager is Epiris, which is to be axed at the end of May under the reforms being carried out by Edward Bramson, the activist investor who has almost 30 per cent of Electra. Epiris, formerly known as Electra Partners, acted as the outsourced manager; Mr Bramson, the acting chief executive, wants to build a new team in-house.
This is only one of the uncertainties faced by Electra investors. As to the two disposals, the timing was not entirely down to Epiris. Parkdean is a mature investment that was widely seen as the next on the slipway. The sale of the Innovia stake came after an approach from a Canadian business for the whole company. The assumption is that further realisations will be carried out before Epiris’s tenure runs out.
Rumour has it that the latter is planning its own £800 million fund early next year. That need not concern Electra investors, though if true the new fund might be worth a punt.
The other uncertainties involve what is to happen to the mountain of cash building up and how the planned new corporate structure, which will replace the rather odd arrangement whereby there was not a lot at Electra and all the work was done by Epiris, works out. The changes were instituted in a strategic review in October; another is planned for next summer, and the cash position will be reviewed.
It has just got more pressing. This month the fund announced excellent results showing a record £751 million investment return. A £200 million tender offer aimed at returning some cash to investors closes today. Electra ended the financial year with about £410 million, taking out that tender offer, but the two latest realisations have taken the figure more than£1 billion. It is a nice problem to have. The shares still trade at a discount to net assets of £51.49, up 61p to £45.82 yesterday, unsurprising given the uncertainty. This is a punt, but worth considering for that probable return.
MY ADVICE Buy
WHY The uncertainties are enormous given the new strategy is not all in place, but at some stage excess capital will have to go to investors
Carnival
Carnival shares are quoted in both New York and London and the cruise ship operator is a constituent of the FTSE 100 index, but it is fair to say that the company is not much studied in the City, though it does take in much of the old P&O operation. It is a useful bellwether, though, for leisure generally, and the annual trading update to the end of November is extremely positive, the most profitable year in the company’s history and a record fourth quarter.
The shares have been recovering well since the autumn. The figures, released after Wall Street opened, showed fourth-quarter yields, the key metric of any travel company and an indication of how full and how profitable the ships were, were ahead by 4.1 per cent at constant currencies, better than a forecast 3 per cent.
Bookings are well ahead of last year and prices are higher, and Carnival is guiding towards a further 2.5 per cent yield gain this year. There are two negatives, the higher fuel price and the strength of the dollar which makes its product less attractive. The shares, up 122p at £41.45, sell on 15 times earnings, which looks full enough for now.
MY ADVICE Avoid
WHY Shares have recovered strongly since the autumn
Avanti Communications
It has been a pretty awful year for anyone involved in satellite communications, investors in Avanti and in the much larger Inmarsat will not need to be reminded. Avanti had to issue a profits warning in July.
The main problem was that the company was running out of financial headway to get its next satellite, Hylas 4, up in the air. All options were being explored — Avanti was even up for sale, with interest from, it is thought, Inmarsat and other trade buyers and the odd private equity firm. The company has instead agreed a refinancing that will raise $242 million in all and get the satellite in the air, probably late next year.
The formal offer period is therefore at an end. This does not mean bids cannot emerge, but the board has taken a view that the best way forward is as an independent company. Investors probably do not have much choice but to agree the refinancing, because the new satellite will more than double the revenue-generating capacity and move further towards break-even.
In all this, the delayed figures for the year to the end of June are probably academic, though losses have narrowed from $73.3 million to $69.2 million. First-quarter numbers are not much use either, though there are encouraging signs of the impact of new customer wins.
Avanti shares have lost nine tenths of their value since October last year, though they rebounded 4p to 25p after the refinancing was announced. It is hard to make much of an investment case, though existing holders may as well stay in.
MY ADVICE Hold
WHY Shares may have bottomed out at last
And finally . . .
Amerisur Resources has not enjoyed the uplift seen by many other small oil explorers on the back of the higher oil price because of its involvement in Colombia. The company has the advantage of a pipeline that takes the oil into neighbouring Ecuador, but a recent trading statement admitted that the disruption from the peace process with Farc rebels had prevented drilling on new wells. The disruption will one day cease, while Amerisur is taking the opportunity of picking up a few spare assets on the ground.
