BlackRock Energy and Resources Income (BERI) has announced its annual results for the year ended 30 November 2020 which show that the trust is making progress on its transition to stocks that offer exposure to the transition in the energy sector, away from carbon-based energy supplies towards alternative and renewable sources. The implementation of this transition began with effect from 1 June 2020, and as at 30 November 2020, 23.8% of the Company’s portfolio was held in energy transition stocks.
Performance
During the year ended 30 November 2020, BERI’s NAV per share rose by 13.9% and its share price increased by 16.0% (both sterling total return terms). In comparison, the EMIX Global Mining Index rose by 19.6% and the MSCI World Energy Index fell by 32.6% over the same period. As noted above, BERI is in a period of transition (it says that it now holds up to 30% of its portfolio in energy transition stocks) and, to give background context to how the renewable energy sector has performed since the portfolio was realigned with effect from 1 June 2020, BERI says that the S&P Global Clean Energy Index rose by 84.8% over the six months ended 30 November 2020 and the WilderHill Clean Energy Index rose by 143.5% (all sterling total return terms).
To give some market context, BERI’s chairman, Ed Warner comments that, as the pandemic took hold, demand for commodities collapsed and significant operational and supply disruption exacerbated sharp falls in their prices. Stock markets subsequently rallied, aided by positive economic data from China and the oil price staged a partial recovery on the back of Organisation of Petroleum Exporting Countries+ (OPEC+) production cuts. He also notes that the second half of the year was generally more positive for markets, and the emergence of several successful COVID-19 vaccines in November 2020 further restored investor confidence. Companies in the mining and energy sectors generally had a strong end to 2020, benefiting from the environment of ultra-low interest rates and supportive fiscal policy.
BERI’s dividend income has been relatively robust
Dividends have come under pressure as a result of the COVID-19 crisis, but BERI says that the income from its investments has remained relatively robust. Revenue return for the year to 30 November 2020 was 4.31 pence per share (2019: 3.97 pence). This was boosted by an uplift of 0.83 pence per share in respect of corporation tax refunds of £945,614 which were repaid to BERI in August 2020 as part of the Franked Investment Income (FII) Group Litigation Order (GLO) vs HMRC (further information on this can be found in note 7 of the financial statements for the year to 30 November 2020). BERI’s Board says that its current target is to declare quarterly dividends of at least 1.00 pence per share for the year to 30 November 2021, making a total of at least 4.00 pence. This target represents a yield of 5.6% based on the share price of 71.40 pence per share as at 30 November 2020.
The Board says that it does not expect the shift in focus away from carbon-based energy supplies towards alternative and renewable sources to impair the Company’s ability to meet its target dividend, which will be delivered primarily from a mix of dividend income from the portfolio and dividend reserves. This will be supported by the payment of income out of capital if required. BERI can also write options to generate revenue income, but the manager will only undertake option transactions to the extent that the overall contribution is beneficial to total return.
Management fee changes
Given BERI’s shift to focus on energy transition stocks, it was announced on 17 March 2020 that BlackRock’s energy specialist Mark Hume would be replacing Olivia Markham as portfolio manager to work alongside Tom Holl. Mark has ten years of experience directly managing energy stocks and is co-manager of BlackRock’s all-cap Energy strategy. At the same time, it was also announced that a reduction in the management fee had been agreed. The management fee is now 0.80% on gross assets per annum (previously 0.95% per annum on the first £250 million of gross assets and 0.90% per annum thereafter). In addition, it was agreed that the Company’s Ongoing Charges, as set out and defined in its annual report, would be capped at 1.25% per annum of average daily net assets with effect from the same date.