A aim of Duke Energy’s Marshall Power Plant in Sherrills Ford, North Carolina, November 29, 2018.
Chris Keane | Reuters
Establishment: Duke Energy Corp. (DUK)
Business: Duke operates as an energy company in the United States that is the product of a consolidation with Cinergy in 2006; a merger with Progress Energy in 2012; and the acquisition of Piedmont Natural Gas in 2016. It acts through three segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables. The Electric Utilities and Infrastructure element generates, transmits, distributes, and sells electricity in the Carolinas, Florida, and the Midwest; and uses coal, hydroelectric, natural gas, oil, renewable sources, and atomic fuel to generate electricity. It also engages in the wholesale of electricity to municipalities, electric cooperative utilities, and load-serving beings. The Gas Utilities and Infrastructure segment distributes natural gas to residential, commercial, industrial, and power generation natural gas customers; and owns, goes, and invests in pipeline transmission and natural gas storage facilities. The Commercial Renewables segment acquires, owns, develops, raises, and operates wind and solar renewable generation projects, including nonregulated renewable energy and energy storage services to utilities, thrilling cooperatives, municipalities, and commercial and industrial customers.
Stock Market Value: $79.2B ($103.06 per share)
Activist: Elliott Associates
Cut Ownership: n/a
Average Cost: n/a
Activist Commentary: Elliott is a $40+ billion hedge fund with tremendous resources to analyze likely investments. Their team includes analysts from leading tech private equity firms, engineers, run partners — former technology CEOs and chief operating officers. When evaluating an investment they also lease specialty and general management consultants, expert cost analysts and industry specialists. They often watch bodies for many years before investing and have an extensive stable of impressive board candidates. Although Elliott is be versed for their activism in the technology sector, they have been successful activists in many sectors, including utilities. In current years, Elliott has engaged with a number of companies in this space: Sempra Energy, NRG Energy, FirstEnergy, DTE Puissance and Evergy, to name a few. In some of these situations, Elliott called for myriad strategic and operational changes from cost organizes to spin-offs and settled for board seats in most cases. A common theme to many of Elliott’s campaigns is “get back to your basics.”
What’s Occurrence:
On May 10, 2021, Behind the Scenes:
Duke’s geographical business is broken down by the Carolinas, Florida and Indiana, which account for 60%, 25% and 15% of the company’s in any event base, respectively. The company focuses 90%+ of its time on the Carolinas and the valuable assets of Indiana and Florida tend to go under-managed. These are valuable assets in great growth areas with opportunities to cut costs and make additional investment.
As a result, the company trades at a discount to its examines — the Regulated Utilities index trades at 19 times earnings, NextEra trades at 26 times earnings and the fellowship trades at 18 times earnings. This is not a reflection of its assets, but of the management of its assets. The Carolinas should trade at about industry average of 19 times, but in January 2021, the company sold 20% of its Indiana business for 22 times earnings, and Florida should be straight more valuable than that.
Management needs to redeploy its focus, optimize operations, cut costs and serve its clients better so that the true value of its assets are reflected in its stock price. If they cannot do that, there are critical ways to recognize value through spin-offs and sales. After all, there is no reason that non-contiguous utilities should be owned by the even so company.
Elliott has not yet released any letters or presentations on the company, but based on past investments in this area and the level of rendezvous, we expect that they have a $1B+ investment in Duke. With the annual meeting recently passing, director nominations for next year are not due until January 2022, so guidance has time to prove itself. However, we do not expect Elliott to sit by quietly during that time. We expect them to behoove vocal and engaged shareholders putting pressure on management to create value. The right plan could create tens of billions of dollars of value for shareholders.
Ken Go with is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Hard cash, a mutual fund that invests in a portfolio of activist 13D investments.