27 March: UK-based carbon investment company Trading Emissions (TEP) expects to be issued with 5 million carbon credits by the UN by the end of April 2009, from a contracted portfolio of 53 million – up 2 million in the last three months.
Including deals that are under negotiation, TEP’s portfolio holds 65 million certified emission reductions (CERs), each representing a one-tonne cut in carbon dioxide, close to its promise to deliver 66 million credits during 2008–12.
Announcing its interim results today, the company booked a notional pre-tax profit of £74 million ($148 million) in the six months to 31 December 2007 – up from £3 million in the same period last year.
On this basis, TEP valued its shares at £1.84, higher than the £1.14 at which they were priced on 25 March. The company said it will take action to address this undervaluing by the market, which it believes to be a short-term anomaly that will be corrected once the company starts generating cash from its carbon sales.
In January, the company bought back almost 7 million shares. “If the share price remains significantly undervalued then share buy-backs make sense,” said Simon Shaw, chief executive of EEA Fund Management, the investment advisor to TEP.
He added that the problems at other listed companies in the carbon sector, such as Dublin-based AgCert which is presently seeking protection from its creditors, was unfairly reflected in TEP’s valuation. Its share price received a slight boost upon publication of the results, climbing 3.5% to £1.18 at the close today.
TEP’s strategy is to avoid selling credits forward and conditions in the CER spot market are “not yet optimal for large-scale disposal", the company said, citing delays in establishing the International Transaction Log – the link between national carbon credit registries. It has been issued 1.9 million CERs by the UN and has entered deals to sell 724,000 CERs before the end of April 2009, including swapping CERs for allowances in the EU Emissions Trading Scheme.
The firm is also turning its attention towards the US, where there is a “strong likelihood of a mandatory cap-and-trade scheme passing through the legislature during 2009”. In January 2008, TEP put a further $10 million into a carbon credit investment fund managed by US-based Element Markets. TEP has also built up its stake in project developer Environmental Credit Corp to 76%; this firm has launched a subsidiary, Ag Carbon Management, specifically to develop methane capture projects at agricultural sites in the US.
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