EAX Energy Action

EAX

I noticed that this company we use at work has listed on the stock exchange in the last month. They are an energy auction company, but also offer services to assist companies to reduce their energy efficiency. I had to go back (to here) to remind myself that I have excluded the 'efficiency' sector, but included companies who offer offset services (under the sector CARBON).

Carbon Tax and the Clean Energy Index

So, if you're paying attention, you'll know that I haven't yet resolved the Clean Energy Index, but I have created the index based on Capitalisation. I look at it most days, but I'll really just using it as a stand in and to learn about the different companies which make up the mix. Which means I can't really answer that question, however, looking at the cap index, after 9 months of nearly consistent decline, the index bounced up nearly 10% in the last week.

If you look at the image below, you'd probably suggest that the bounce is more related to the confidence that has returned to the share market in the last week or so. I've read that the market has already priced in the effects of the carbon tax, although I am rather skeptical of these kinds of statements, but perhaps stock traders are a lot cleverer than I give them credit for.


Today the 'cap' index moved up by 1.1%. I have no idea if that is a lot or a little for one day, but we'll see how it goes compared to the ASX200 over the next couple of days.

Carbon Pollution Reduction Scheme II

Today we got past the first hurdle on the putting in a pollution trading scheme. Here it's called a "Carbon TAX", which is Julia's way of inflicting the most pain on herself via the polls, but I'd rate it over the name Kevin failed to get through. There is a great review of this event over at Annabel Crabb's blog.

I first read about carbon trading around 10 years ago, probably in the book "Natural Capitalism", which you can read free online (Nat. Cap.) and at the time I thought it would never be possible for our society to get to that point. Today we're here, and it feels like no time has passed.

As a tongue in cheek celebration, I went out and bought cakes for the staff in the office. I don't think there was one other person in the office who thought it was even remotely sensible for us to bring in carbon trading, with at least one person boycotting the morning tea offer. At the end of 15mins of heated discussion, explaining to me why it was a bad idea, I only got back to my desk by 'agreeing to disagree'.

My point in relating this anecdote is to say that I think the carbon tax has a very small chance of survival, I hope that the Australian Labor party can sharpen up its ability to communicate, or that Malcolm Turnbull will replace the monkey who's leading the Liberals before the next election, but after 11 years of John Howard as PM, nothing would surprise me in Australian Politics.

Thanks Julia - you did a good thing.

 You can see what the Guardian thought here (the source of the image)

Splitting up the market

OK, so the last post bar one focused on how I could modify the split of the index to better represent the quality stocks - the different between a capitalisation approach and a fundamental approach. Remembering that I'm trying to create an index, which should be impartial to my feelings or intuition and rely only on data. So far, I'm still unresolved - as I look at the data right now, I have to make an algorithm which compares the losses of 30 companies against the profits of just 3.

At the same time, one of the biggest issues I see is that one of the best looking companies for selling and manufacturing of solar power (Silex or SLX) is also supplier of nuclear fuel processing technology. They are also the single biggest company in the index as it stands today - at around 28% of the index.

So the question I am pondering on this is - do you buy the for the upside or ignore them for the downside?

Or can I add something else into the equation? Sure, if we buy shares in SLX, the investment is in all the business units, but perhaps reviewing the fundamentals might adjust for their relative engagement in nuclear vs. solar - at least scale the 28% down by whatever the breakup of the business was.

I've spend a bit of time trying to understand the company and see where the money comes from or goes to, but it comes back to the same question: which fundamentals do you use to divide things up? Here, we have hardly any choice - the information in the annual report is:

SECTOR :          SILEX   SSOLAR   SOLARS  TRANS CHRONO
REVENUE         33%      66%           1%            0%         0%
BOOK               72%      11%           16%          1%         0%
PROFIT              $1M     -$18M       -$6M         -$4M     -$1.7M

By revenue, SILEX SOLAR and SOLAR SYSTEMS make up the larger share of the company - at 67%, but by book value (assets less liabilities) the make up a small fraction of it (27%). By profit however, is another story altogether - if fact, I can't do a percentage, since they give losses, while Silex systems uranium enrichment technology is providing positive results.

I have to get my head around comparing a profit to a loss as a percentage....

If you support Nuclear energy, check these guys out - it's brilliant that they've maintained the two solar manufacturing businesses that we have here in Australia and it would be great if you could go out and buy some solar panels made in Sydney!!

http://www.silex.com.au/

Serendipitious Support

I went to the library today,  looking for books on indexes, but while I was there I found this book:

http://au.wiley.com/WileyCDA/WileyTitle/productCd-0470283564.html

It starts:
"
Welcome to the next great bull market. ... Bigger and longer lived than the tech-stock and housing booms combined. I'm referring, of course, to clean tech.<br>
"
Within a few pages, he's excluding nuclear, clean coal and traditional hydro - which is also my point of view, but exactly how to enact that I have figured with the merging of solar and nuclear clean (see Silex SLX).

Drowning in a sea of data

Whilst I drown in a sea of data, or lack of data, the share market is continuing its downward spiral, each day making the proposition to buy more and more attractive.

But which stocks to buy and in which volume?

Here's a snapshot of the data I've been looking at and some notes on the quality*:

Price/Book - a:33/33, b 29/33
of which 7 companies are listed with different numbers
4 are negative numbers??

EPS - a33/33, b 31/33
of which 8 are different
only 4 of the 33 are positive numbers....

P/E - 4/33 for both, however
these are not the same companes and
the 2 that do overlap are different.
They are all positive, which probably means that all the rest would be negative, hence not reported.

As a quick thought, some mix between P/B and EPS would make some sense - that would include the Price, the profit and the book value should the operations cease to exist.

My thought is to take Market Capitalisation as step one, and they create a simple formula to weigh in the factors above.

Manana.


* a- is from Morningstar Australia, b is from Google Finance.

and down (Sept 2011)

I haven't given up - I've been doing two things:

1>watching as everything slide further and further downwards during September (with a mixture of horror and amusement). I think Michael Pascoe got it right when he said it would be funny if it wasn't peoples retirement savings that was being hit. The ASX plays out the most dramatic possible scenario after each evenings news from around the world : a report says China may not grow as fast this year: drop by 3%, the next day China's growth will be compensated by recovery in the eurozone, up by 2%. American have a good meeting, up 2%, Europeans say the wrong thing after a dinner with some banking mates: down 1%. The whole affair is like a teenage romance, up and down with every wind. Suck it up guys, there'll be good and bad days - don't sell. Unless you bought on speculation, not because there was any real value in the stock, but you wouldn't do that, right?

2>trying to decide how to resolve the 80-20 rule as it comes to this index. After the last post, I have really been wondering about the split, and whether I should bother with the bottom companies which represent individually less than 0.5%. (80-20 rule here is actually 80-30, where 80% of the index funds would be in 30% of the companies in the list).

The bottom 10 companies in the list (by capitalisation) represent 2.5% of the index - hence if they all rose in value by 50%, the impact would be about 1% growth in the index. That's not a lot of bang for your buck.

Secondly, until I've got a lot money to invest, it'll cost almost as much in brokerage as the value of the shares. And I'd like to actually buy some of the these share, because while they're all heading south, surely that means they just represent a bigger opportunity.

What I really want to do is re-sort the companies using some of the principles of fundamental indexation, but there is nothing compelling directing me which fundamentals to use. This has been the real drag on my 'getting' on with it, if I can have an excuse other than my own attention span. Fundamental indexes use revenue, employees, cash flow or sales instead of market capitalisation, but none of those things seem perfect to me - why would a company with a larger revenue go up more (or down less) than a company with a smaller revenue - perhaps they'd be more stable, but if you are talking about the companies here, a lot of them have negative revenue, or are really at a stage when revenues are no where near stable..

Can a fundamental index include such things as P/E ratio - to me this seems the most logical criterium on which to decide which stocks to buy - the stock with a lower price compared with it's earnings seems more likely to grow than one with a higher P/E, well it would if the earnings were positive and there was some hope of a distribution - which in this sector there doesn't seem to be much hope.

And further to that, I started to wonder if I couldn't use renewable ENERGY GENERATED as one of the factors in the buying decision. It seems unlikely that I can get that data without some serious mining, but maybe. This would knock out some of the spuriously large companies - like SLX, which as far as I understand, doesn't make anything from its solar business at this stage - it's positive looking numbers coming from nuclear fuel processing.

To start making some notes on the companies, I've created a 'page' on this blog (http://cleanenergyindex.blogspot.com/p/complete-list.html) where I'll collate any info that I find on the companies - starting with the market cap based ranking that they have.


Oh, and I downloaded the rest of the data - just to prove to myself it really did make no difference whatsoever. You can see for yourself below: