Introduction
Certainly, it has been our best quarter ever. The portfolio went up 49.95% led by our main position, Golar LNG, which was positively affected by the fantastic momentum around LNG and the substantial advance in its business plan. Other important supporters of this return have been Ranger Oil, Global Ship Lease and Vintage Wine Estates (A beautiful fairy tale that lasted for 2 weeks – the shortest holding period in MORAM history). Besides, our derivatives positions (mainly sold puts) also added a significant percentage of the gains.
We started the year with a concentrated portfolio of six positions plus a significant exposure to derivatives. Around 70% of the portfolio was invested in natural gas. We also benefited from the good performance of the maritime transport sector, where we had significant exposure, first through derivatives and now through a mix of derivatives and shares (GSL).
Throughout the quarter, we closed 2 positions, reduced another considerably and opened 3. As we explained in the past, the main reason behind the high concentration of this portfolio is that MORAM manages 3 portfolios (managed and non-managed aka index funds where we obtain the diversification we do not have in the managed). In 2021, we added a Crypto portfolio, so we decided to further concentrate the portfolio.
In order to pursue investments in the managed portfolio, we identified three main macroeconomic topics: Inflation, supply-chain shortages and the European energy crisis. These trends have only accelerated during the quarter due to the Russian invasion of Ukraine and the consequent sanctions.
Consequently, our portfolio is allocated to take advantage of these situations. At the moment and due to the macro environment, we are more oriented to value than growth. However, having into account that high energy prices will lead to a global recession, we are already analysing different types of companies in new sectors which will be part of our portfolio in the coming months.
Also, and due to the excellent quarter, we have around 15% of the portfolio in cash. We are analysing the situation and the best way to re-invest these proceeds.
Portfolio rotation in the 1Q22
During this 1Q22, we have added three positions (Global Ship Lease, Jadestone and Vintage Wine Estates) and closed two (Ranger Oil and Vintage Wine Estates). We have also reduced our position in Golar after its huge increase in price. Golar was our main position in the portfolio, as it continues, but its weight was close to fifty per cent of the managed portfolio, so we cut that figure to 30% again in the last days of the quarter. We used these proceeds along with the sale of Ranger Oil, which we sold after reading its CAPEX budget for 2022 & a fantastic increase in its share price, to buy Global Ship Lease, Jadestone and Vintage Wine Estates. In the last week of the quarter we sold VWE and reduced Golar.
The rationale behind these movements has been “diversification” from Golar and the energy sector. Even though the investment in Jadestone, which we thought was a great opportunity as we explained in our last report, the exposition to both has decreased considerably.
It is worth to explain that we bought Vintage Wine Estates as we wanted to have a little exposition to the wine sector again, and VWE is a small company which went public in the last months of 2021, it is growing very fast and it was very cheap compared to its peers. However, after a quick rise of its share price in only 2 weeks and the problems reported by its lately reporting peers about the environment, we decided to delay a little bit our investments in this sector.
The portfolio as of 31st March (Ordered by weight): Golar LNG, Kistos, Global Ship Lease, Adriatic Metals, Power Reit, Greenalia and Jadestone.
Comments about the companies in the portfolio
Golar LNG’s performance has been outstanding this quarter, it went up almost 100% thanks to the price of the TTF, Brent, the spin-out of the shipping division and the quasi-confirmation that it will announce 1-2 FLNG projects in June/July this year. Because of the revaluation, we have reduced the position. Although, it continues as the biggest one in our portfolio.
A significant event in this 1Q22 was the spin-out of CoolCo. It has simplified the structure of the company and reduced earnings volatility. Now, Golar owns 33% of CoolCo and it has received $200MM for the rest of the entity.
Another important fact worth mentioning is the resurgence of New Fortress Energy, trading over $40 again (Golar owns 18.6MM shares of NFE). Recently, it has announced 2 Fast LNG and it is expected to start production in Santa Catarina and Barcarena in the next 2 to 4 months. (Nicaragua facilities have been delayed more than a year over the original schedule,…)
Besides, another catalyst should be the Perenco’s drilling results, where we expect Hilli’s utilisation to increase for the period 2023-2026.
Kistos share has not performed well enough having into account the TTF prices during the quarter and the futures curve. Namely, Kistos has made > $150MM FCF in the last 3 months.
The most relevant movements during these three months were announced on the 31st of January, when Kistos announced that it bought 20% of Greater Laggan Area (adding 6000boeps of natural gas) and the disappointing results of 11Q-B which sent the share back to 326p
We continue believing that Kistos is the best option to play the structural problem that Europe has related to energy. This problem is under the “perfect storm”, but do not fool ourselves by thinking that it is going to end when the invasion of Ukraine finishes, it is not. This problem is going to be around for several years, and Kistos, along with its management team, is going to fly high. Specifically, we think that Kistos is in a similar situation that Golar was one year ago, the fundamentals are there, but it needs a catalyst (an acquisition, hedge in the 100s,…) to shine.
Greenalia is going to be positively impacted by the high power prices. However, it has not started the construction of Campelo, Bustelo and Monte Toural (110MW). Despite the progress with the state of the portfolio (several projects entered in public exhibition phase), they are not building anything, and the delays are titanic… Over the last 12 months, it has moved from our second position to one of the last, and despite its relatively cheap price, we are not adding any new shares until we see some changes in the current situation. In theory, they should have presented the new strategic plan for the period 2022-2026, we wait for the conference call scheduled in April to gain some colour around their plans.
Power REIT is under high pressure at the moment. A member of the board resigned putting forward a lack of good governance in the company. Power REIT published a press note saying they disagree with the decision, but we were expecting something more convincing. There has not been any new deal this quarter, which is also weird compared to the pace of lack year. On top of that, Millennium Investing’s shares (its main client and the other company of its CEO) dropped >50% this quarter. We were lucky to sell a significant part of the position almost at the top price ($80.20) but we bought again these shares before the resignation news ($40.5). The results published this Friday shows a substantial increase in revenue, but not in EPS for common shareholders. We asked them several questions and we are waiting for the answer of the company to take a decision regarding
Adriatic
Global Ship Lease is a lessor of container ships. It is taking advantage of the high container prices. It has locked the vast majority of its fleet for 3-5 years at x3/x4 times the money they usually get before Covid-19. The management is good, the debt’s size is under control and they seem to be aligned with shareholders, increasing the dividends accordingly to the good results they are obtaining.
Jadestone is an energy company in the Southern Asia & Oceania area. It follows a business model quite similar to the Kistos one. So far, it is more focused on oil rather than gas. We recently published a detailed analysis with all the information about its assets, valuation,…
Derivatives / Options
Penn Virginia / Ranger Oil – Expired/closed out of money/$0.05 the puts sold at $10, $12.5, $15, $17.5 and $20. We still have some sold puts at $22.5 expiring in July. This options strategy in Ranger Oil is paying off significantly, meaning a 3% of the portfolio increase
Golar LNG – We had leveraged out bet selling puts at $10, $12.5 and $15 with expiration in June 22. Following the surge in the share price, we closed all of them with the exception of these with strike at $10, which we expect they expire way out of money in Jun 22. We also think that the rest of sold puts would have expired out of money, but we needed to diminish leverage & exposition to Golar.
ZIM – Sold puts at $40 expiration Apr22.
TELL – Bought calls at $6 Jan 24 and sold puts at $2.5 Apr22
Global Ship Lease – Huge number of puts sold at $25 at a significant premium to leverage our bet on the company
NMM – Sold puts at $22.5,$25 and $30 (at significant premium & risk the last one, so far is paying off)
Comments about the Crypto portfolio
This quarter we have continued increasing our exposition to cryptos. The weight of crypto in the total portfolio went from 12% at the end of December to 12% as of 31st March, impacted by the huge increase in the size of the managed portfolio. We increased our position in BTC, and we maintained our exposition to Matic, Harmony, Avalanche,
We plan to continue allocating to crypto a percentage in the 10-15% range of the portfolio, with Bitcoin being our biggest investment and the rest allocated among other interesting projects, mainly L1/L2.
Comments about positions in ETFs/Index Funds
We maintain our position in all the three funds we had at the beginning of the quarter
- Ishares Developed Real Estate Index (45%)
- MyInvestor Nasdaq100 (27.5%)
- Vanguard Emerging Markets Stock Index (27.5%)
In the same way that we are thinking about the changes to do in the managed portfolio due to the predictable recession, we are also evaluating potential substitutions of our index funds. The idea is to continue having a small number of them, with concentrated positions.
Final thoughts
It has been a very good quarter for our portfolio. We have been positioning for the natural gas shortage in Europe for months due to evident infrastructure problems and the lack of a real vision from our politics. Sadly, now it is quite evident because of the Russian invasion of Ukraine. And we believe that it is not going to change whenever the war finishes.
Nevertheless, it is not going to be easy for our portfolio to continue performing at this pace. We know that we have a gemstone called Kistos that can send the portfolio to the moon again and we think that it is a simple matter of time. Also, when Golar start to announce new deals and “become” a growth player, it will be benefited. However, we also need to be ready for a quick change in the script that harms our energy positions. Consequently, we are already looking for interesting companies in other sectors to be ready & more defensive. Besides, for the first time, we are almost 15% cash.
Best,
Carlos