Broker labels Government’s prized asset a $150m sustainability ‘loser’

A company that has $150 million in backing from the State Government has been named as a sustainability loser.

Oct 01, 2021, updated Oct 01, 2021

Financial services firm Wilsons Advisory said it had identified a list of companies within the ASX 200 that had sustainability challenges that it believed meant they had underperformed the market over the past two years.

Among the list was Dalrymple Bay Infrastructure, a company that owns a north Queensland coal port and in which the Palaszczuk Government took a 10 per cent stake. 

It also put Aurizon, which transports coal, on the list. 

“The market is currently implying that these companies are ‘sustainability losers,’’ Wilsons said in a report to investors.

New Hope eluded the tag of loser because of a relatively strong share price performance.

The Government bought the almost 10 per cent stake in Dalrymple at its float after selling the asset about 20 years ago. At the time it was an eager buyer and declared it should never sold the asset.

The part ownership of Dalrymple as well as two of Australia’s biggest carbon emitters – CS Energy and Stanwell could be seen to conflict with the Government’s climate change goals. Dalrymple has also been a relatively weak performer on the ASX, as well.

“The Australian energy sector has outperformed the global energy index over the past five years, but post-COVID this has reversed, with Australian energy underperforming global peers by more than 10 per cent since March 2020. 

“Global energy stocks were simply more reactive to the emergence of the sustainability theme, which started to gather momentum in 2017-2019, softening the outperformance of ASX listed energy stocks.’’

“In coal exposed equities, the relative performance is starker. 

“A near three-times increase in coal prices has only increased coal exposed equities by 1.5 times, much of that in the past two quarters. 

“This is the inverse to what occurred when the coal price last experienced a strong up-cycle in 2017-18. 

“What makes this relative performance of New Hope and Whitehaven more fascinating is the outlook for supply growth much lower today versus 2018. We again explain this relative underperformance of coal equities through a sustainability lens.’’

It said Aurizon also faces a similar challenge as investors shunned coal exposed assets, exposing significant sustainability discounts. 

“AZJ pre-COVID typically performed in line with global utilities. Now AZJ trades at a -40 per cent discount to its historic price-earnings ratio relative to the market. This is despite undertaking multiple share buybacks and reinvesting capital in non-coal exposed logistic networks,’’ the Wilsons report said.

It said the sustainability discounts would appear to be permanent but there were two issues that cause that to change – the booming demand for coal and the fact that stranded assets can still perform well and create good return.

Other companies in the list were AGL, Santos, Origin, APA, Spark Infrastructure, Ausnet, S32, Whitehaven, Oil Search and Woodside.

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