Coal may have built Britain, but it is now pretty much unacceptable for listed British blue chips to have anything directly to do with it. At the very least they have to be able to show they are weaning themselves and customers off it.
Last month HSBC yielded to activist pressure and set itself firm dates by which it will stop funding thermal coalmines or coal-fired power stations. Now another FTSE 100 company, Anglo American, is doing its bit, spinning off its South African coal arm into a separately listed business to be named Thungela.
The demerger is neat. It shifts the onus from Anglo to its investors as to whether they choose to continue to own coalmines. Some will be dumping their new Thungela shares at the first opportunity.
Anglo, meanwhile, will soon no longer be blackened by its association with coal — though there’s one more coal asset in Colombia to be sold first — and may even win back some of the investors that have boycotted it in the past, like Norges, the Norwegian sovereign wealth fund.
At the same time the demerger mechanism avoids Anglo having to sell off coal assets at what might be a low point for valuations. Rock-bottom coal prices have wiped out profits for two years, but the recent rally might just turn Thungela into a decent income stock.
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The decision was not too hard for Anglo. Thungela accounts for a relatively small chunk of its assets, revenues and profits. The new business is expected to have a market value of perhaps $400-500 million, as against Anglo’s valuation of more than $50 billion.
What the demerger won’t do is reduce the amount of coal burnt in power stations or the volume of planet-warming emissions and smog. Coal fuels 35 per cent of global power production today and this is expected only to drop to 31 per cent by 2030, according to Wood Mackenzie. The world will still require coal for many years.
To that extent, the investor boycott of coal is in danger of merely shifting value away from environmentally minded investors to those who are less squeamish.
It will make a small difference eventually because it will raise the cost of capital for miners and push customers into finding substitutes. But the heavy lifting of weaning the planet off coal will still have to be done by governments, not investors.
Rent in retirement
In America 95 per cent of retirement accommodation is rented and just 5 per cent bought outright. Here, it is almost the reverse. Downsizing retirees might reluctantly sell the family home but they still want a finger in the property-owning pie.
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John Laing Group’s guess is that this will change. The infrastructure investment house and its joint venture partner, Macquarie Capital, are splurging up to £200 million on up to 650 retirement flats, which will be rented out on one and two-year leases.
It’s quite a departure for the group, which is happier backing less consumer-focused infrastructure such as hospitals and wind farms, though it does have experience in student accommodation.
The fundamentals look promising. It’s the sixtysomethings who have the money. There’s a shortage of suitable housing: new bungalow building has collapsed from about 9,000 a year to less than 2,000 a year in the past 20 years.
There are many retirees with substantial pension income, who don’t want the hassle of maintenance and would like to hand over lump sums to their family now, rather than after they die.
Recent figures from McCarthy Stone, which is building the homes and will operate them, suggest behaviour may be changing: one third of its transactions this year have been from renters, not buyers.
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It’s a good idea if it speeds up downsizing and frees family homes for the next generation. But for a nation this wedded to ownership, it may take quite a nudge to persuade long-time owner-occupiers to return to the joys of dealing with landlords.
Patient distrust
Neil Woodford continues to cast a shadow over the stock market. His former Patient Capital Investment Trust, which wisely goes under the alias of Schroder UK Public Private Trust, has just written down its assets by another £80 million, or 20 per cent.
The problem this time is a stake in Rutherford Health, a company offering proton beam therapy to cancer patients, which the trust has slashed in value from £81 million to £34 million. It was in response to “slower than expected commercial progress and increased risk to the business outlook for equity holders”.
This business was a favourite with Woodford, as was Industrial Heat, a US company trying to crack “cold fusion”, a kind of alchemy many mainstream scientists have dismissed as complete fantasy. This has been written down too.
Then there is the holding in Kind Consumer, a business developing nicotine inhalers, which has not been very kind to investors at any rate, and gone bust. All told the trust has written down eight investments, though there have been a couple of up-valuations too.
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The shares now trade at 32.5p, down by two thirds since Woodford launched Patient Capital in 2015. It’s not fair to blame the new managers, who inherited a poor hand.
At least one of the investments, Oxford Nanopore, which announced float plans last week, may yet come good. It needs to if it is to rehabilitate the image of the trust’s chairwoman, Susan Searle, who allowed Woodford to push more illiquid assets into the trust in a deal never properly explained. She is an inexplicable senior survivor from the Woodford era.
