Eastern Bay Energy Trust

Recently the Eastern Bay Energy Trust (EBET) had its annual general meeting.  This is a large community trust which has around 28,000 beneficiaries residing in the Eastern Bay of Plenty and elsewhere.  As stated by the Trustees at the AGM, they do not have an investment strategy, nor do they have an investment adviser. 

The EBET’s largest investment is a 77.29% shareholding in Horizon Energy Distribution Limited (referred to as HEDL by the Energy Trust, NZX code HED), a publicly listed company.  From Companies Office Records we see that the next largest shareholder is Robert Famularo of Auckland who holds 2%, and interests associated with Ronald Gillat of Christchurch hold 1.96%.  The only apparent institutional investor amongst the large holders is the Accident Compensation Commission, which has a 0.88% stake.  Other than these, the next largest holding is only 0.31%.  Effectively the remaining 2600 odd shareholders only have just over 18% of the company, on average around 1700 shares.

HEDL is primarily an infrastructure company.  Fluctuations in the HEDL share price have a dramatic impact on the value of the Energy Trust.  For example, for the year ending 31 March 2004, there was almost a $30M rise in the value of the share holding, and by 31 March 2006 another $13.745M increase.  Over the following two years there was a decline of $33.738M.  Last year there was a minor increase of close to $250,000.  The share price has picked up in recent days with the current offer by the Marlborough Lines Company.  The change in value since the March 2009 balance date has been around $2.25M.  Regardless of the share price, the most important aspect for distribution purposes to beneficiaries is the dividend yield which according to the NZX is around 7.8%.  The share price over the past year has ranged between $2.80 and $3.40, which for the Energy Trust is a range of almost $11.6M.

The EBET has suffered a lot of flack for the performance of its other investments.  These are primarily held in the name of Development Enterprises Limited (DEL).  These comprise a small percentage of the total assets of the trust.  The ill fated Parkwood investment has proven to be the most costly investment.  The investment in OPAC has provided a reliable cash flow investment return.  The two orchards in which the trust has significant direct share holdings should start to produce an income return.  Much will be dependent on market prices for the Gold Kiwifruit and of course the yield.  OPAC also has a holding in these orchards.

The most surprising investment for DEL to have is a significant shareholding in Comvita.  DEL owns 1,001,780 shares which cost $3,406,052.  The average cost was $3.40 per share.  Comvita is a small secondary board listing on the NZX.  The stock code is CVT.  Over the past year, the share price high was $1.75 and the low $0.73.  It is currently around $1.10.  Comvita is primarily an exporter of honey and honey based products, especially those that have been derived from Manuka honey.  Its key ingredient, Manuka honey, is very dependent on Manuka flowering and fluctuates significantly on a year to year basis.  This coupled with the effects of bee diseases and pests such as the Varroa mite are an added business risk.

Comvita is a share that is seldom researched by independent analysts.  The lack of liquidity of the shares is such that they are unlikely to be recommended for client investment portfolios.  We see from the NZX website, that the price earnings of Comvita are in excess of 40.  A PE of 40, implies a dividend of 2.5%. 

It is natural for beneficiaries to focus on the performance of the DEL investments.  Obviously there are, and have been some problem investments in the DEL portfolio.  There are also some promising investments, which should contribute positively over the next few years.  However, the key to the fortunes of the Trust remains very much dependent on the fortunes of Horizon Energy, especially its share price and dividend yield.