MoneyTalks: Three ways to invest in the decarbonisation thematic, with Sam Berridge
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MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.
Today, we hear from portfolio manager and resources analyst Sam Berridge of Perennial Partners.
“We are quite bullish on the battery metals suite,” Berridge says.
“Sectors of interest for us include lithium, nickel, and high purity alumina.”
In the short term, the global energy crisis is probably going to have an impact on battery metals demand, Berridge says.
EV powerhouse China is in the grip of a severe shortage of both coal and electricity. In Europe – an emerging lithium-ion manufacturing hub — COVID-19 recovery related energy spikes have prompted an astonishing 280% increase in wholesale gas prices.
These issues will probably be temporary, says Berridge. It just means demand for battery metals could be deferred for 3-6 months.
“For example, nickel prices dipped last night due to power restrictions being applied to stainless steel producers in China – and stainless steel is still the biggest source of demand for nickel,” he says.
“These power restriction in China are weighing on some sectors more than others, but in aggregate, this power shortage should be temporary.
“While we may have a little hiatus in demand now, it just means demand is going to be stronger soon as power becomes available to ramp up manufacturing.”
Market Cap: $161m
Year-to-date return: 2%
GenusPlus are a specialist high power voltage construction and maintenance company.
“If you dig into the renewable and decarbonisation thematic it becomes readily apparent that the distribution network around Australia needs to be expanded materially,” Berridge says.
“AEMO the energy regulator put out some numbers and a framework plan about what is required, and there is a huge amount of work coming down the pipeline to expand the flexibility of the grid over the next 10 years or so.”
“This is quite specialist work, with high barriers to entry.
“Genus is one of the companies sitting squarely in the middle of that.”
Market Cap: $280m
Year-to-date return: 188%
Demand for high purity alumina (HPA) — a specialised product used in lithium-ion batteries, LED lights, and more – is growing at a rapid rate.
FYI has a high purity alumina project in WA. [On Friday — post this interview — it finally announced the deal with Alcoa about formalising a joint venture for the development of that project.]
“It remains to be seen what that agreement will have in it, but it is conceivable that FYI might be able to sell down some of the portion of the project to fund its share of the capex,” Berridge says.
“That would negate the need to raise any equity.
“If they negotiate that then FYI’s share of earnings from that project could be over $200m. The company is sitting here with a market cap of around $280m.”
Market Cap: $461m
Year-to-date return: 190%
Battery recycling is going to be massive, and these guys are at the front of the queue of companies globally which are looking at this market, Berridge says.
“Neometals have a joint venture with a big German engineering company to develop a lithium battery recycling plant,” he says.
“They also have expressions of interest from other potential JV partners in Canada, and Japan.”
“The company is building a demonstration plant in Germany, which is near on complete. They are going through wet commissioning now.
“There’s still a way to go there in proving the process works, but certainly the size of the addressable market on a 10-year view is absolutely huge.
“I think it is thematic which should be very well supported by the market.”
Sam Berridge is a former geologist and now portfolio manager of the Perennial Global Resources Trust. The Trust has delivered performance of 70% net of all fees since inception.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.
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