What we do
What drives us is finding attractive equity and commodity investment opportunities in the energy, mining and renewable sectors. Palissy’s team differentiates itself by constantly following-up on these ideas through a tailored interaction with its clients.
Palissy Advisors’ experienced team capitalises on its deep understanding of global energy and mining industries to provide clients with differentiated macro, commodities and equity analysis. The top-down/industry part of Palissy Advisors’ research enables the team to extract broad thematic views we put forward that can be expressed in a portfolio.
The process is then investment idea driven; instead of doing classic maintenance research on an investment universe. A major part of Palissy’s product is therefore equity research, which is produced through a detailed and granular stock selection process that aims at populating the themes extracted from our industry analysis.
Our clients are very different in nature (sovereign wealth funds, hedge funds, pension funds, commodity trading houses); investment styles (long/short equity, macro, event-driven, credit, long only) and investment horizons (3 months to 5 years). We find this diversity constantly feeds the loop with interesting inputs.
This investment process has been proven very effective and the long term track record is robust.
Stock Selection Process
Through a deep understanding of global energy markets and mining commodities, Palissy can provide differentiated macro and industry analysis. This is thanks to sector expertise built over previous decades, proprietary databases, an extensive industry network and our constant interactions with energy and mining management teams. The goal of the top-down/industry focus of Palissy Advisors’ research is to extract strong thematic views, which we advise to express in a portfolio.
From there, Palissy’s aim is to perform a detailed bottom-up analysis to populate these themes with under-valued stocks in which to invest, over a 6 to 18 month time horizon. This process is done through regular meetings and calls with energy and mining management. The top-down and bottom-up parts of Palissy Advisors’ research are very complementary but all the modelling on equity investments in the energy, mining and renewables sectors in North America and Europe is done without incorporating the team’s macro views i.e. on spot and forward prices.
Palissy looks for a string of catalysts ahead to unlock the value on the stocks and enable the theme to play out.
This investment process has proven very effective and the track record is excellent. Most importantly, this robust set-up enables us to quickly adjust our views when one of our recommendations on a single name or commodity is not right.
Examples of Investment Ideas
Late June 2021, Iron ore was trading at $210 and we published a report to sell/short the commodity with an initial target to $120 as well diversified miners as the commodity represented 70% of the combined EBITDA of the industry and a correction would have an impact on the entire segment. ASX:FMG, ASX:CIA, NYSE:VALE, LON:RIO, LON:BHP, LON:AAL
Elevated prices were only reflecting 66% Fe content product while the 58% was trading at 40% discount. Rebar and HRC prices were at all time high with the Chinese government trying to manage the rising construction costs by lowering import restrictions on scrap and other commodities. Steel margins in China were collapsing and turning negative which we thought would trigger an increase in exports.
While all the idle blast furnaces in the world in 2020 had been restarted by the end of Q4 2020 and were operating at full capacity for long enough to be able to reduce output if necessary, the report focused on China real estate, anticipating collapsing housing starts and real estate prices due to the combination of lower credit availability and massive unfinished building overhang houses after 5 years of strong starts and weak completions (impact on Rebar through falling square meter starts). The other major trigger for demand weakness came from our forecast of a deceleration of the manufacturing side of China's economy especially fixed asset investments in infrastructure, in line with the declining credit impulse.
Meanwhile, major supply disruptions of the past years (vale dam spill, Rio caves blast scandal) and their aftermaths were behind and seaborne miners were planning a 16% YoY growth in volume in 2022 and reallocating capital to their best performing divisions. Our supply and demand analysis indicated a market in surplus for the following years.
Palissy Advisors’ $120 initial target was reached early September, we revised the target to $85 mid September and the target was reached mid-November. Our recommendation to short/sell the basket of large cap miners exposed to iron ore early in the summer generated substantive alpha for our clients with an average absolute return of 31% and relative return vs. S&P of 41%, MSCI world & Eurostoxx +38%.
Saudi Aramco Independent Valuation report
Ahead of the IPO of the largest energy company in the world, the team of analysts published an independent valuation report. Palissy Advisors came out with a $1tn valuation mark that was 50% below the low of the range of the 40 banks members of the syndicate so paid by the seller. Palissy was then the only energy research firm to provide its clients with an independent valuation deck and a proprietary model. This shows the added value of high quality independent research for clients and a perfect example of how it differentiates itself from maintenance bank research.
We had a successful stock call to buy Shell in June 2021, ahead of its Q2’21 results given we had a non-consensus call that Shell would commence a share buyback. Our note timing coincided with the low-point relative to the sector and the buyback announcement resulted in out performance versus its peers over the following months, following its previous underperformance in 2021. We highlighted Shell’s stronger FCF and better balance sheet (when adjusted for hybrid issuance) than the other majors. As well as our forensic net debt analysis, we had done detailed work on Shell to show that its more customer focused business than peers creates a higher multiple and higher value company and more likely to have a successful energy transition strategy. We emphasise both timing and our strong fundamental reasons for our stock calls in our research.
Our stock specific research aims to deep-dive into companies to play particular themes in order to get exposure to macro themes as well as company specific catalysts. An example is our note on GALP at the end of 2019: the key macro theme was that the performance of the refining exposed names was overdone ahead of the new IMO regulations coming into force in 2020, which played out as we expected. We also believed that GALP was structurally over-valued versus its peers trading on a growth multiple on consensus forecasts that were too high. Its key asset in Brazil was moving into decline and there was a significant capex burden from Mozambique expected. Over the following 2 years GALP’s total shareholder return was negative 35%, the worst performer amongst the European integrated oils as our thesis played out.
Access to Palissy macro and commodity research
Access to Palissy Advisors’ industry research and major investment themes driving investments in the Energy, mining and renewables sectors
Access to Palissy equity reports and proprietary modelling
Access to proprietary industry data
Interactions with the team on major industry themes and follow-up on single names investment ideas.
Work-shops on major Energy transition issues.