PEAK ASSET: MORNING WRAP 19 September: ASX to open lower | US stocks were little changed | Focus on the outlook for interest rates. |

MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.

Today we hear from Rusty Delroy, the iconically mulleted founder and investment manager of boutique Cottesloe firm Nero Resources Fund.

Everything about Russell ‘Rusty’ Delroy speaks a man who goes against the grain, and the investment manager based by one of Perth’s famous beaches in Cottesloe strikes a unique figure in Australia’s mining investment game.

He still has the traditional investment banker puffer vest for site visits, but with his party-at-the-back hair and conviction in value investment he’s not afraid to take a contrarian stance.

It comes across in his confidence on the oil and gas sector, where a severe misalignment between company valuations, investor sentiment and actual supply-demand metrics could be brewing.

The fact conventional energy stocks are the largest exposure in the Nero fund, nestled in the heart of WA’s currently battery metals mad western suburbs, speaks volumes of Delroy and Co.’s determination to look for hidden value in the resources investment market.

“Oil and gas is our biggest exposure by sector at present. And interestingly, you know, a lot of the things we’ve been buying are bigger cap offshore names,” he said.

“I know that sounds weird. But stocks, like BP (LON:BP), for example.

“We see a lot of value in oil and gas. We don’t see the sector going away in terms of relevance anytime soon and you’ve got some pretty pristine balance sheets in diversified majors.”
Who will be the real renewables winners?

Distinctions could easily be made between fossil fuel suppliers and companies positioned to compete with them by focusing squarely on renewables and new energy metals.

But Delroy says the reality is the two aren’t as mutually exclusive as many investors believe.

“BP for instance, and a number of these other — particularly European — oil and gas majors, they actually have very substantial renewable businesses as well,” he said.

“They’re not out there waving the arms talking about future industries in decarb, they own decarb industries today and they’ve been building up for long periods of time.

“So I don’t think that’s well appreciated by the market and the offshore names trade at big discounts to some our local names in Woodside (ASX:WDS) and Santos (ASX:STO), on our analysis anyway.”

Where is the market missing a trick? Delroy agrees there’s an ESG overlay to the attractive valuations he sees in firms like the $174 billion BP.

“I think there’s a perception around that perhaps there’s some sort of terminal nature to hydrocarbons or to oil and gas and we disagree with that,” he said.

“So our view is this sector’s here and relevant for a long time to come. We agree with decarb and those sorts of things as well. They’re all very important, I don’t want to discount that.

“But they’re going to take a lot of time and capital to pull off and in the interim there’s certainly a very clear role for gas in the energy mix and we still have a huge number of transportation consumers of oil.

Source: Stockhead