Tag Archives: infrastructure

Diving Into The Herzfeld Caribbean Basin Fund

Summary CUBA is a closed-end fund focusing investment in the Caribbean. CUBA is currently trading at a 20% premium to its NAV. News in Caribbean has been large driver of fund since it’s inception, that could be changing. A few months ago I wrote an article attempting to recommend ways to profit from the newly rekindled U.S. and Cuban relationship. In this article, I recommend, among other options, the Herzfeld Caribbean Basin Fund (NASDAQ: CUBA ). After receiving a few messages and comments speaking on the haziness of this fund and the caution that should be exercised with it, I was prompted to further research and analyze the fund. In this article, I will divulge my unbiased findings on the fund. Overview CUBA is a closed-end fund that focuses on investment in companies that have potential to recognize large revenue increase from the economic development of Caribbean countries, including, but not limited to, Cuba, Dominican Republic, Costa Rica, and many others. By using a long-term investment strategy, the fund attempts to position itself in such a way to profit from not only tourism in the Caribbean, but also from projects and investments to improve infrastructure, trade, and the standard of living in the region. As the fund’s homepage states, the ultimate goal and investment strategy is long-term capital appreciation, driving fund manager, Thomas J. Herzfeld, to make investments in companies that are not only risk averse, but also poised to grow alongside the region. Findings The elephant in the room with this fund, and the most obvious concern from the comments on my aforementioned article received, is the fund trading at around a 20% premium to its net asset value. This is a red flag for investors, and has been a concern for the past 9 months. Investors do not want to pay a price 20% higher than the value of the assets, before fees, for a fund with a seemingly risky premise. Trading at a premium is a relatively young trend in the larger picture, starting in late 2014 after almost 5 years of discounted trading in relation to its NAV. It is important to analyze the factors that may be causing the sudden jump in price of this closed-end fund. The predominant explanation is investor excitement around Cuba. The trend towards Cuban relations is an unpredictable and exciting one, and investing in something so unknown can be a daunting decision for even experienced investors. This makes a fund that has been involved in the Caribbean for many years an attractive option. The continued news about Cuba has sparked the interest of many investors and the Herzfeld Caribbean Basin Fund is riding a wave of excitement that could very well be the largest contributing factor to the premium it is currently trading at. This is what fund founder and manager Thomas Herzfeld had to say about the topic in an interview with Barron’s. “Yes, it hit $15 a share, and the net asset value was about $7 or $8. That’s in keeping with its history. Whenever there is good news on Cuba, it reacts like that.” The last transition from a discount to a premium price point that the fund made was in late 2014, putting it right on track with the date that movement toward restored diplomatic relations between Cuba and the U.S. was making news, confirming Mr. Herzfeld’s statement. The correct question to ask now is, is this price and growth sustainable? As it is evident that the price of the fund largely depends on Cuba, it would appear that after news dies down the fund will fade with it. On the contrary, if the news gives way to palpable improvement in the market, especially in Cuba, the fund is poised to profit from growth in that nation and all across the Caribbean. The fund has existed solely in a time period when good or bad news was the most influential driver of price. The realization of actual action and efforts to improve relations with Cuba have put a new era of tangible growth from real economic improvement into the realm of possibility for the Herzfeld Caribbean Basin Fund. If this is the case, then it is only a matter of time before the NAV catches up with price as companies reap profits and success while the Caribbean becomes an emerging market and hub for economic and infrastructural development. In addition to the inflated price, investors also pay the management fees for investing in a fund, adding an additional expense to cut into final profits. In the financial reports from the fund, it can be seen that virtually all investments, 99.36%, are common stocks. The fund has no direct investment in the Caribbean, but that being said, the diversity in its portfolio is worth mentioning. The largest portion of the portfolio, 16.75% belongs to leisure stocks, including cruise lines such as Carnival Corp (NYSE: CCL ) and Royal Cruise Lines (NYSE: RCL ), both poised to reap profits from growth in the Caribbean, especially Cuba. The next largest segment belongs to airlines at 15.17%, with investment in airline companies that serve the Caribbean and stand to profit from prosperity in the region. Another important and potentially profitable fund investment focus is in infrastructure. Herzfeld and his team have portioned 11.64% of holdings to construction and materials companies including MasTec (NYSE: MTZ ) and Vulcan Materials (NYSE: VMC ), both companies are based in the southern United States and both are standing ready to supply Cuba with the infrastructure it needs to grow as a country. This could lead to the recognition of profits for the fund and the advancement of the Cuban economy. Investment in these companies not only finds profit from their role in bolstering Cuban infrastructure and economy, but also shows promise in helping other holdings that will feed off of an improved Cuba. Fees to own CUBA are 3.64%, which begs the question, is it worth paying a premium to the NAV and fees for a portfolio of mostly common stocks, of which I could simply own myself? The simple answer, by investing in this fund, one is investing in not only the sum of its holdings, but convenience of immediate diversification and exposure to an exciting market, paired with the expertise of management that has knows the region and has been in business there for years. Manager of CUBA, Thomas J. Herzfeld is a closed-end fund and Caribbean veteran, having written a number of articles and books on the topic, paired with living in Miami for 40 plus years, it was hard for him to not become a Caribbean expert, primarily Cuban. This expertise in both has only been sharpened since he started the Herzfeld Caribbean Basin Fund in 1993. Conclusion The primary concern when analyzing this fund is its relative volatility compared to its price. When the fund trades at a premium to its NAV, it is due mainly to outside factors influencing investor excitement about an intriguing market. It is advisable to proceed with discretion with any investment, but given the volatile nature of CUBA, one should truly analyze the cause and effect nature of the Caribbean and Cuban market exists in and the subsequent cause and effect nature of this market on share prices of not just the fund as a whole, but the companies it holds. It is well within the realm of possibility to see steady and reliable growth in the Caribbean and ensuing growth and performance from CUBA. That said, we could be staring down another situation of investor excitement sending share prices and hopes into the stratosphere only to come crashing down when the reality of the situation does not live up to the high expectations set for it. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Significant Expected Growth Rate Earns Dominian Resource A Bullish Thesis

Summary Company’s future performance will remain strong due to strong potentials of growth efforts and capital spending. D’s performance and execution of growth projects highlight ability to attain anticipated level of earnings growth in years ahead. Analysts have anticipated a strong next five-years growth rate of 6.25% for D. I have a bullish stance on Dominion Resource (NYSE: D ); the company is efficiently executing its infrastructural growth strategy that focuses on getting a regulated asset base through the extension of its renewable energy generation project. As a matter of fact, there are a series of ongoing strong infrastructural growth projects being undertaken by the company, which will positively impact its long-term earnings growth. Given the strong potential of its strategic growth investments, I believe the company’s cash flow base will remain strong in the years ahead, due to which D will continue to increase its dividends at a decent pace, which will positively affect the stock price. Growth Investments Are Keeping Me Bullish on D’s Long-Term U.S. utility companies have accelerated their growth investments in order to strengthen their infrastructure and better serve customers. Owing to these hefty growth investments, utility companies will experience growth on their top and bottom-line numbers. Like all other companies in the U.S. utility sector, D has also designed a growth strategy that is centered on the idea of establishing a large and improved energy generation infrastructure through hefty capital investments. In fact, the company has announced that its average annual spending till 2020 will be in a range of $1.2 billion. The following graph details D’s capital investments plan from 2014 to 2020. (click to enlarge) Source: Investors Presentation Currently, there are several ongoing construction projects of the company, which I believe will act as important drivers of its long-term growth; in the first half of 2015, D invested more than $500 million in electric transmission projects. The company is working hard to get an extensive network of regulated, renewable energy generation resources through its hefty investments, in order to comply with strict carbon dioxide regulations. In this regard, two of D’s promising gas supply-based renewable energy generation projects, the Atlantic Cost pipeline (ACP) and Cove point facility, are currently progressing in-line with the schedule. At Cove point, the overall project is 31% complete and around 90% of engineering is near to completion. And for ACP, recent reports reveal that ACP is running ahead of the management’s original plan, with operations expected in November ’18. Due to the effectiveness exhibited by ACPs’ management, I believe investor confidence will improve, which will portend well for the stock price. Moreover, there are several other promising gas generation projects at D, like the project to build 1358MW of natural gas combined cycle facility in Brunswick country, which is proceeding well by staying on-time and on-budget; so far, around 75% of work related to this project is complete and it is expected to begin service in mid-2016. Also, the company has filed for construction approval of 1,588MW gas-fired combined cycle facility in Greensville country, VA, which is expected to be in service in December 2018. The plant is expected to be one of the largest combined cycle gas plants in North America, which will be built under a rate rider, if approved. Apart from its gas-based energy generation projects, the company has been allocating sufficient funds to develop solar energy generation resources. D had invested $700 million to build multiple solar-energy generation projects in Virginia, which will in supply total 400MW of electricity. And under this plan, the first step was taken in January 2015, when the company filed a case for rate rider and CPN for a 20MW solar facility at its Remington power station. If approved, the 20MW facility will be in service by late 2016. In addition, D recently acquired a 265MW solar farm in Utah from SunEdison (NYSE: SUNE ) for $320 million , as part of a joint venture that the two companies had entered into last month. Given the fact that utility companies are growing their renewable asset bases to comply with environmental regulations, I believe all of the above-mentioned renewable energy generation projects of the company will allow it to generate strong sales and healthy earnings in the years ahead. Owing to the strong growth potentials attached to these projects, D’s management is confident of achieving its promising earnings growth target of 6% to 7% through 2020. Also, analysts have projected healthy next five-years earnings growth of 6.25% as shown below. (click to enlarge) Source: Nasdaq.com Investors Remain Rewarded At D Over the past few years, the company has maintained its policy of paying healthy dividends to shareholders, which are backed by its cash flows. D currently offers an attractive dividend yield of 3.77% . Owing to their strong infrastructural growth and development-related investments, all of which will ensure strong cash flows for D, the company’s management has affirmed that they will continue to increase dividends in future, as shown in the graph below. (click to enlarge) Source: Investors Presentation Also, given D’s strong growth prospects, analysts have projected consistent increases in the company’s book value and cash flows per share, as shown below. (click to enlarge) Source: 4-Traders.com Risks The company continues to face the risk of lagging behind the management’s expectations, due to possible construction delays or cost overruns at its ongoing projects. Moreover, unforeseen negative economic headwinds, utility regulations, rate case risk and unfavorable weather conditions are the key risks that might adversely affect D’s future stock price performance. Conclusion I believe D’s performance will remain strong in future due to the strong potentials of the company’s growth efforts and capital spending directed at strengthening its asset base. Also, the company’s performance and execution of growth projects highlight its ability to attain the management’s anticipated level of earnings growth in the years ahead. Moreover, the strong growth efforts will create a strong and stable earnings base for D. Also, the company’s growth efforts will portend well for its cash flows and will allow the company to consistently increase dividends in future years, which will positively affect the stock price. Also, analysts have anticipated a strong next five-years growth rate of 6.25% for D. Due to the aforementioned factors, I am bullish on D. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Exelon – Making Good Strategic Decisions

Summary Exelon’s commitment to growing its regulated asset base with investments means it will experience strong future growth. The company remains committed to acquiring POM, which will strengthen and expand regulated operations. Analysts are expecting a healthy earnings growth rate of 5.06% for EXC. I reiterate my bullish stance on Exelon Corporation (NYSE: EXC ); the company’s healthy financial performance in the first half of 2015 indicates that its fundamentals are really strong. Moving ahead, as EXC continues to invest in projects related to its infrastructure growth and development, I expect to see the company’s financial numbers growing at a rapid pace in the years ahead. EXC’s acquisition of Pepco Holdings (NYSE: POM ), if approved, will strengthen the company’s future growth potentials giving more upside to its future earnings and revenue base. And given the fact that the long-withstanding nuclear plant closure plan is about to get legislative approval soon, I believe that EXC will witness a positive impact on its stock price as it will raise investor confidence in the company’s future growth prospects. EXC’s Long-Term Growth Drivers Remain Intact Given the fact that demand for electricity has been increasing at a modest pace, utility companies have been investing heavily in their infrastructure development and growth-related projects to meet growing demand and strengthen their power generation fleet. Like all other companies, EXC is also making hefty growth investments for its natural gas and renewable energy generation-related projects that contain strong potential for rate base growth. Under this investment plan, around 215MW of clean energy generation assets were added to the company’s portfolio in 2014. Moreover, in the first half of 2015, EXC’s 40MW of Fourmile Wind energy project started operations in Maryland, whereas the construction of its second Maryland-based wind project, the 30MW “Fair Energy Wind Project”, is underway. Given the fact that its attempts for growth of clean and renewable energy generation infrastructure have started making positive contributions to the company’s financial numbers in the overall first half of 2015 and, particularly in 2Q15, EXC’s growth efforts have accelerated in this area. Currently, the company is actively working to complete its 230MW of solar photovoltaic project in Antelope valley, Solar Ranch. With around 3.8 million solar panels, the solar photovoltaic project, once completed, will be the largest photovoltaic projects in the world. In addition, EXC is working hard to build a new CCGT unit in Granbury, which is expected to add 1,000MW to the existing 704MW at the natural gas power plant. With their high operational flexibility, which is 100MW/Minute ramp rate and efficiency, these units will not only transmit energy faster but also have the flexibility to generate electricity during peak demand hours. The company’s management has reaffirmed their confidence in CCGT units, and given the strong efficiency of these assets, I believe EXC could generate healthy returns in Texas. Along with its infrastructural growth and development-related projects, the company’s increased inclination towards acquiring other business casts an impressive picture of its future growth prospects. In this regard, EXC has long been eyeing the potentials of POM. Recently, DC regulators have denied the company’s bid for POM, but given the strong growth potentials attached to the deal, EXC’s management said in a recent press release that they will appeal against the regulator’s decision. The company’s management believes the POM acquisition will increase the contribution of its regulated utility earnings to 60%-65%, in total, up from its current 50% contribution, which will ultimately secure its future earnings and sales growth potential, and will also provide stability to its cash flows. Owing to the company’s hefty growth investments made year-to-date and also due to its plan of making more investments in the years ahead, I expect strong sales and earnings for EXC in future. During the 2Q15 earnings conference call, while affirming the company’s long-term investment plan, EXC’s CEO said : …we’re investing $16 billion in our existing utilities over the next five years, which provides respectable growth rates, and roughly another $7 billion with the addition of PHI.” Furthermore, the company’s decision to either shut down or retain the nuclear plants in Illinois is expected this month. Given the fact that retention of nuclear plants will become costly for EXC, due to order costs related to nuclear cores, which depend on the length of continuing operations, and also due to increased legislative requirement under the Obama administration, I believe the company should close its loss-making Illinois-based nuclear reactors in order to better its competitive position and secure its long-term earnings growth potential. Also, EXC will be able to focus on its stable, regulated operations, which ensure a secure and stable cash flow base for the company. EXC has been sharing its success with shareholders in the form of dividends, and dividends offered by the company are safe. Also, its cash flows will improve in future due to the company’s above-mentioned efforts for getting a larger, regulated asset base. The stock offers a dividend yield of 4.20% . Given the company’s commitment to making healthy dividend payments and also due to its secure cash flow base, I expect to see consistent dividend growth in future. Also, analysts expect an increase in cash flows and book value per share for EXC in 2016 and 2017, as shown below. (click to enlarge) Source: 4-traders.com Risks The company remains exposed to the risk of fluctuation in commodity prices, which could adversely affect its margins. Furthermore, rate base risks, volatility in interest rate environment, lower capex outlook and unforeseen weather changes are few risks that might hamper EXC’s future stock price performance. Conclusion The company’s commitment to growing its regulated asset base with investments, including investment directed towards several clean and renewable energy generation projects, makes me believe that EXC will experience strong future growth. Moreover, the company remains committed to acquiring POM, which will strengthen and expand its regulated operations, and provide stability to its sales and earnings in the years ahead. Also, analysts are expecting a decent sales growth rate of 3.16% for EXC, which is well above the industry median of 1.62%. Moreover, analysts have projected a healthy next five-years earnings growth rate of 5.06% for EXC. Due to the aforementioned factors, I am bullish on EXC. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.