William Heathcoat Amory
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Updated 07 Feb 2022
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Disclaimer

This is a non-independent marketing communication commissioned by BlackRock. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

  • During the year to 30 November 2021, BERI’s Net Asset Value per share increased by an impressive 34.4% and its share price by 41.7% (both percentages in Sterling terms with dividends reinvested). The board does not formally benchmark performance against mining and energy sector indices, but for reference the EMIX Global Mining Index rose by 12.5%, the MSCI World Energy Index rose by 41.2%, the S&P Global Clean Energy Index rose by 1.4% and the WilderHill Clean Energy Index fell by 6.1% over the same period.
  • The Board has increased the annual dividend target by 10% for the year to 30 November 2022 to 4.40p per share. Dividends this year were 4.1p, payable from the revenue return of 4.96p, a 15.1% increase over the prior year.
  • Over the year to 30 November 2021, BERI’s shares have traded at an average discount of 5.6%, and within a range of a 13.2% discount to a 5.8% premium. In May 2021, the trust reissued shares for net proceeds of £2.9m. Subsequently, shares moved to trade at a discount again and the Company bought back £48,000 worth at a discount of 8.4%.
  • The Chairman believes that BERI is “well positioned to move flexibly between traditional energy, mining and energy transition sectors”, noting that “the COVID-19 pandemic… continues to generate market volatility”.

Kepler View

BlackRock Energy & Resources Income (BERI) occupies a very interesting space within the investment trust universe, and as the results from last year (and since) show, it has been a profitable one in which to have been invested. The managers believe that whilst “the long-term trajectory towards Net Zero is a certainty”, the path we take to get there will not be straight. They observe that their expertise – in mining, traditional energy and alternative energy – will enable them to generate strong returns because of the necessity of all three of these areas to enable the global economy to get there, but also the tendency for expectations of many market participants to overshoot. Just such an eventuality played out in BERI’s financial year just gone, where traditional energy stocks in the oil and gas sector were the biggest contributor to performance.

As we discuss in our most recent note, BERI’s managers reduced exposure to ‘energy transition’ stocks in November 2020 when news of an effective COVID-19 vaccine was announced, having made strong returns since the energy transition stocks was formally introduced to the mandate on 01/06/2020. This set the team up for a strong period of performance, and the Chairman notes that the team continued to “negotiate the volatility in energy prices well with appropriately timed shifts in exposure to the sector as prices surged and fell. The mining sector also contributed positively to performance on the back of strong commodity prices. These gains were offset by losses in the energy transition sector”. The managers appear optimistic on prospects, and they observe that management teams in the energy and mining sectors continue to maintain strong discipline over capex.

Contrasting with funds more purely exposed to ‘sustainability’, BERI’s managers offer a more pragmatic and rounded exposure to the huge changes we expect to see in the global economy as it seeks to decarbonise. The benefits of their flexible approach are there for all to see in the last financial year’s numbers. The increased dividend target announced by the board is the icing on the cake and seems underpinned by portfolio revenues having improved last year. That said, in the future, if the portfolio is tilted more heavily towards energy transition stocks once more, the portfolio yield will likely decline. The board have undertaken to support future dividend payments with revenue reserves and capital if necessary.

At the time of writing, the shares offer a prospective dividend yield of 3.9%, and trade on a premium to NAV of 2.6%. As the results announcement illustrates, the share price rating has been volatile, and will potentially remain so. The board are currently issuing shares, which will help to bring the OCF down further, which fell from 1.25% to 1.21% over the last financial year. BERI’s managers have delivered good returns since the shift in the mandate and have navigated a changeable market well. BERI offers a team whose specialist areas of focus puts the trust in a potentially good position to benefit from a secular theme that is set to run for decades.

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