And then there were 26 – Sold Energiedienst

A few days ago, I published my 28 stocks for 2015. Pretty soon after that, I already sold Sberbank.

Now I sold another stock, Energiedienst, the German/Swiss Hydro Power generator which I bought only last year.

The investment case for Energiedienst was pretty simple: Energiedienst as a hydro power generator is an “electricity price pure play” with a solid balance sheet. My expectation was that Energiedienst could profit in the mid-term if the conventional utility companies take capacity off the market, as running gas and coal powered power plants were loss making for E.On and RWE.

Now however, with plummeting fossil fuel prices, this is a different game. With Oil, Natural gas and Coal prices plunging, producing conventional electricity will be relatively more attractive. This is for instance the chart of European coal prices:

coal

Not as dramatic as oil but still a -25% drop through 2014. Cash strapped utilities like E.On and RWE will produce conventional electricity as long as the make positive operating cash flow. With lower input prices, they will be able to do so for longer. One could argue that this might make alternative energy less attractive as well, but due to guaranteed investment returns on those projects, there will be still a lot of capacity added going forward.

This could be one of the reasons that electricity prices are now dropping to new lows in Germany. Energiedienst, in the past, has always performed pretty closely to electricity prices as we can see in the chart:

adhn 2

As one can see in the chart, Energiedienst’s share price has somehow “disconnected” from electricity prices for the time being, which, if history is any guide, could soon reverse.

Again, the recent drop in oil prices has changed the underlying assumptions of an investment case. Even if Energiedienst looks cheap and now trades at a trailing of close to 5%, the only logical course of action is to sell the stock. As I have learned the hard way, if one of your general assumptions regarding an investment doesn’t hold up anymore, you rarely can expect great returns going forward. And just holding a stock because of an assumed dividend yield is often a very bad idea as a lot of Eon and RWE investors have found out.

I will clearly keep an eye on German utilities and Energiedienst going forward, but for the time being, German Hydro power looks a lot less attractive than a year ago.

For the portfolio, I assume to be able to sell at 30,50 CHF per share or around 25,35 EUR which, together with the 2014 dividend results in a gain of +9,8% (pre tax) since February 2014.

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