Sell Alert: it’s time to sell two winners from the portfolio
28th May 2024 |
We’ve decided to sell two profitable holdings from the Southbank Growth Advantage model portfolio: DS Smith (LON: SMDS) and NET Power (NYSE: NPWR).
DS Smith (LON: SMDS)
Recycled-content paperboard and packaging producer DS Smith has risen by over 20% since the start of the year. It’s now trading around 370.30p at the time of writing, putting it 17% up in our model portfolio.
As you’ll recall, in April DS Smith agreed to be bought out by US rival International Paper in a £5.8 billion deal. It came after a bidding war between the American company, the world’s biggest paper business by sales, and Mondi, the rival London-listed packaging specialist.
However, those plans could now be in doubt as International Paper has found itself the target of a potential takeover.
Suzano, the world’s largest producer of pulp, is now in talks about a potential bid for International Paper, which raises the question as to the viability of International Paper’s agreed-upon combination with DS Smith.
According to a Reuters report, Suzano’s purchase of International Power would be contingent on the latter firm abandoning its DM Smith takeover. That’s because if International Paper does manage to buy DS Smith, it would likely make the combined entity too big for Suzano to swallow.
Although there remains a lot of uncertainty, what is for sure is that the pre-agreed DS Smith deal is now on considerably less firm ground. Although this might eventually prompt Mondi back to the table, I think we should get out now at a decent return.
Action to take: SELL DS Smith
Ticker: LON: SMDS
Current price: 370.30p
Entry price: 317p
% gain/loss: +16.81%
NET Power (NYSE: NPWR)
We recommended carbon capture company NET Power at $9.49 in the November issue of Southbank Growth Advantage. It’s now fetching $10.76, putting it 13% up in the model portfolio.
As you’ll recall, NET Power has developed a natural-gas power plant that makes it easy to capture carbon dioxide released by the burning of natural gas.
NET Power’s technology produces electricity by combusting natural gas with pure oxygen, creating water and carbon dioxide – most of which is recirculated back into its power generation system.
Excess high-purity CO2 can then be sold to industry or sequestered underground. The company plans to use Occidental Petroleum’s existing infrastructure near Odessa, Texas, to move trapped CO2 to a permanent storage location.
The company plans to build its first natural gas plant in Texas’ Ector County by the first half of 2028.
However, concerns are growing as to whether this timeline is in any way achievable.
Although NET Power’s La Porte demonstration plant has successfully delivered power to the Texas grid, it still hasn’t generated more power than it consumes.
As reported by Heat Map, in reports filed to the US Securities and Exchange Commission as recently as last month, under a section titled “Risk Factors,” the company noted that its La Porte demonstration plant has “not yet overcome all power loads to provide net positive power delivery to the commercial grid during its operation.”
Although there remains a lot of promise in the company’s technology, there are certainly questions over the amount of progress it is making.
As such, let’s SELL now and bank a satisfactory 13% return in six months with a view to piling back in when we have more confidence in the project’s timeline.
Action to take: SELL NET Power
Ticker: NYSE: NPWR
Current price: $10.76
Our buy price: $9.49
% gain/loss: 13.38%
James Allen
Co-editor, Southbank Growth Advantage
