One Fifty One? No, It’s Worth Far More…

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Alan Walsh, hazardous waste, IAWS, metals recycling, NTR plc, One Fifty One plc, One51, Pageant Holdings, Philip Lynch, plastics, Straight plc, Sum-of-the-Parts Analysis

A One Fifty One plc investment write-up has long been outstanding from me now, as certain readers have reminded me! It’s high time now I rectify this – especially since I’ve already highlighted One51 & its CEO, Alan Walsh, play an integral role in the unfolding NTR plc story. Of course, One51’s also another classic example of Celtic Tiger hubris & near-collapse – but its future definitely looks far more promising…

Let’s rewind:  In 2005, members of the Irish Agricultural Wholesale Society Ltd. approved the creation of One51. In bygone years, it would probably have remained just a sub. of the Society, conservatively managing its investment properties & portfolio. But the Celtic Tiger demanded something more ambitious, so it became a stand-alone company: a) When Society members became direct shareholders in One51, via a Feb-2007 share exchange, and b) grey market trading commenced in One51’s shares at the end of Oct-2007.

[NB: Irish grey market shares are unlisted – akin to unlisted UK shares (which trade via matched bargain), or US OTC/Pink Sheet stocks (but without the benefit necessarily of market-makers). One51 now has a quarter billion dollar market cap, and its standards of reporting, corporate governance & investor relations equal any of its listed peers, but it’s still a grey market share…so be aware of the usual investor health warnings. But if you’re still interested, you can discuss and/or trade One51 with these brokers.]

This independence was something of an illusion though, as One51’s board and management was populated mostly with continuing (& former) directors and management of the Society & IAWS Group plc. [IAWS Group was a listed sub. of the Society, which has now become Aryzta (YZA:ID) & Origin Enterprises (OGN:ID)]. The company’s shareholder base also overlapped with those of the private & public IAWS entities. But those were heady times – brokers & punters weren’t too worried about potential grey market illiquidity, or governance issues. All they really cared for was the mesmerising strategic vision painted by Philip Lynch, One51’s CEO. [Who was still CEO of the Society, and a former CEO & Chairman of IAWS Group]. Unlike everybody else at the time, Lynch wasn’t actually focused on property investment & development…instead, his real ambition was to become a genuine mover & shaker in the Irish (& even the UK) corporate world.

Unfortunately, looking back, his vision doesn’t look so compelling (or even that strategic). During 2006-08, operating & financial acquisitions were occurring at the frantic pace of almost one a month – and well over EUR 500 million (gross) was actually spent during this period. As a result, the balance sheet almost quadrupled within a two year period (peaking at EUR 900 million+ by end-2007), funded by an easy combo. of bank debt & fresh equity. [Plus EUR 168 million of Convertible Loan Note (CLN) issuance, most of which was quickly converted to equity also.]

Buoyant business & investment confidence, optimistic growth expectations, and the intoxicating availability of cheap funding, all conspired to jack up prices paid (& goodwill recorded) at the time. And management’s lack of financial discipline was clearly evident in the minimal (low single-digit) net profits & return on equity recorded in 2006-07. But judging by One51’s opening share price, investors didn’t much care – they were too focused on their prospective gains, and the touted ‘integration and synergies’ to be extracted from the company’s sprawling portfolio.

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NTR plc – Breezin’ Right Along…

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activist investors, Alan Walsh, Chris Hunt, NTR plc, One Fifty One plc, Pageant Holdings, Pattern Energy Group, Riverstone, Tom Roche, Wind Capital Group, wind energy

Judging by the emails/comments I’m getting, there’s plenty of current & potential investors out there delighted to see Monday’s announcement from NTR plc, confirming the sale of its US wind farms. [i.e. NTR’s 201 MW Post Rock, KS & 150 MW Lost Creek, MO wind farms – both approx. 3 years old, with 20 yr investment-grade PPAs in place]. Like many corporate releases though, it raises just as many questions as it answers…including the most obvious question:

So, what are the implications now for NTR’s NAV & share price?!

Far be it for me to predict a near-term share price trajectory – let’s see what the next few weeks’ trading brings – but I’m obviously keen to arrive at a fresh NAV estimate, based on this key value-realisation event. First, let’s take a breath & revisit my original NTR investment write-up (from Aug-2014). I won’t recap it here…because I’d suggest (re-)reading that piece is probably essential prep for the rest of this post (it definitely was for me!).

Picking up where I left off, I wrapped up that post with this speculation: ‘…it will be interesting to see if there’s any fireworks at the [September AGM] meeting’ – little did I know how fortuitous, yet prescient, this would prove to be! Preceded by a number of critical press articles (which prompted this pre-AGM response), there were indeed fireworks at the AGM itself…I think it’s fair to say management looked a tad defensive & beleaguered by all the questions and attention!

However, the real AGM highlight was confirmation the board had already requested management (in April-2014, which of course ‘preceded and was entirely independent from any…shareholder discussions’) to consider the strategic options for NTR’s US wind assets. It was also acknowledged (as I’d already argued in my prior post) ‘there could be strong interest in the US wind assets given their quality and operational performance’, and that ‘a successful sale could result in an opportunity for an additional liquidity event for all our shareholders.’ This was capped off with a commitment to appoint expert advisers, and (subject to their report) to potentially move ahead with a sale process.

Shortly after the AGM, the company then confirmed its three main shareholders (representing 71.5% of NTR’s issued share capital) had reached agreement, and had ‘put a proposal to the Board that it initiate a process to sell the NTR US wind assets as soon as possible and that NTR implement a tender offer as soon as possible thereafter for NTR’s issued shares.’ Depending upon the tender price per share, One Fifty One plc & Pageant Holdings informed the board they intended to accept such a tender offer for all their shares, while Woodford Capital (family investment vehicle of Chairman Tom Roche) stated its intention not to sell any shares in such a tender offer. This obviously allayed any lingering investor concerns management wouldn’t follow through on a value-realisation strategy…as evidenced two months later by the appointment of Marathon Capital to formally launch a sale process for the US wind farms.

NTR plc…Wind of Change?

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activist investors, Alan Walsh, grey market share, National Toll Roads, Nick Furlong, NTR plc, One Fifty One plc, Pageant Holdings, Rosheen McGuckian, Tom Roche, Wind Capital Group, wind energy, Yieldcos

NTR is a strange beast, neither fish nor fowl. Of course, regular readers will recognise that tends to intrigue me – the best opportunities often arise from misunderstanding & neglect. And NTR’s balance sheet intrigues me even more… But whoa Nellie, we’re getting ahead of ourselves here! Let’s back up:

We should begin with the Roche family dynasty – here’s a good potted history. Tom Roche Senior founded National Toll Roads – its first venture, the East-Link toll bridge, opened in 1984. The company slowly expanded, completing the West-Link bridge in 1990 & adding a second span in 2003. With the advent of the Celtic Tiger in the late ’90s & the completion of the M50, traffic volumes & revenues exploded, and the company became a goldmine. The government, in its wisdom, then decided to buy the West-Link in mid-2007 – just ahead of the credit crisis! NTR subsequently monetised the NRA’s index-linked payments of EUR 50 million pa (from Aug-2008 to Mar-2020) for an up-front consideration of EUR 0.5 billion. This was a great deal (followed shortly thereafter by an even larger sale of its Airtricity stake), but unfortunately the company was also in full Celtic Tiger mode at this point. With Tom Roche Junior taking the helm after his father passed away in 1999, NTR had ambitiously transformed itself into a developer & operator in renewable energy (solar, wind & corn-based ethanol) and sustainable waste management – in Ireland, the UK & across the US.

By Mar-2007, in just 3 years, the balance sheet more than quintupled to EUR 2.0 billion (funded by 1.5 billion of total liabilities)! Accompanied by a share price which managed much the same feat – I specifically recall the brokers hailing NTR as a new Irish blue chip to every last punter with a pulse & a wallet. [When I mention the company’s listing ‘status’, you’ll realise this pitch was even more dangerous than it sounds…] But investors eventually started getting cold feet – the shares peaked at EUR 7.00 in Jan-2007, well ahead of the crisis. Because of the West-Link & Airtricity sales, the company was sitting on a large cash pile as it entered 2008 – but it was also burning close to EUR 0.7 billion pa of free cash flow at the time. And despite the financial crisis, the spending never stopped… In Apr-2008, management actually embarked on a brand new investment folly (solar energy) with an initial USD 100 million deal to purchase a controlling interest in Stirling Energy Systems. Well, you know what came next…

I’ll spare you most of the blood & guts, let me just highlight total equity (exc. NCI) bottomed this year at EUR 117 million, down nearly 90% from a Mar-2008 peak of EUR 1.1 billion. [NTR’s real annus horribilis came in FY-2011, with a loss of EUR 381 million – one of the largest non-banking losses in Irish corporate history]. And the share price suffered even more horribly – reaching a EUR 0.25 low in Aug-2012, down 96% from its peak: