Hi All,
Firstly, wishing everyone a very Merry Christmas and HNY! I just wanted to share one of my plays for heightened inflation in 2022 - a 'infra' stock, Delorean (DEL). I should also note that I'm not 'Value Downunder' - a Twitter account that is also bullish on Delorean (and who publishes stock analysis far superior to mine)!
To keep it short, there are 5 key points to my bull case:
- Operating in an Industry with strong tailwinds (i.e. renewables and waste management): Delorean owns and operates 'biogas' plants. Biogas is a renewable form of energy - it is derived from the conversion of waste (organic and industrial) via an anaerobic process. With its technology and know-how, Delorean also develops biogas plants for 3rd parties (e.g. Brickworks, Yarra Valley Water).
- Based on Delorean's operations, it benefits from both i) the growing demand for renewable energy and ii) increasing pressure for household/industrial waste to be diverted from landfill. Both factors means higher prices, which is favourable for Delorean as it can sell its energy at a higher margin and accept waste to its plants from 3rd parties at a higher gate fee.
- Follow the smart money: The share registry features some impressive names - most notably Peter Gold (MD at Archer Capital and Chairman of Future Super), Norman Pater (software entrepreneur and current chairman of Carbon Farming Foundation) and Steve Gostlow (experienced Waste Management operator). Regal Funds also owns ~7% of stock, but has been reducing their stake over the past month (from 8% to 7%).
- Management alignment: Chairman and CEO's stock ownership is at 50% - they're clearly aligned to driving shareholder value.
- Access to Arena funding (i.e. government funding): The obvious benefit is a reduction in the size of any future (dilutive) capital raisings.
- Strong operational focus: This is demonstrated in DEL's target IRR for each project of 15% to 25%. And notwithstanding this level of return, DEL has been able to win significant projects like the aforementioned Yarra Valley Water 'waste water to energy' plant.
