Horsfall benefits from Arrow Energy and looks to solar for volume play

Arrow Energy's share price soared last month, after a bid from Royal Dutch Shell and PetroChina which upon revision was recommended by the company - a welcome outcome for F&C's Sophie Horsfall, who holds the stock in both the F&C Stewardship International OEIC fund and F&C Global Climate Opportunities SICAV fund.

Horsfall commented: "We held 1% in the company prior to the bid being announced. Following the initial bid, the stock bounced 47% to its record high and we took profits, slicing a third of our position. Arrow Energy's largest asset includes Australia's biggest holding of methane gas and this deal will give the bidders a foothold in Australia's emerging coal seam gas industry, which looks set to become a big exporter. We expect to continue holding the shares in the international assets of Arrow, which will be spun off during the acquisition, as Dart Energy Ltd."

Elsewhere, the positioning of both portfolios within solar energy remains crucial given the current industry oversupply and pricing issues, with Horsfall seeking to own names that are well-placed to benefit as systems prices fall.

Horsfall anticipates that module prices will continue to fall in 2010, driven mainly by excess capacity of polysilicon, wafers, cells and modules but that this decline in average selling prices should help generate additional unit growth in the solar sector. She favours SMA Solar Technology, who produce solar power inverters and inverters for wind power plants in addition to software and accessories, and have almost 50% global market share. High efficiency and low maintenance costs enable SMA inverters to command superior returns for photovoltaic installations. The company has also continued to increase capacity and improve production efficiency to further reduce production costs.

"By investing in SMA Solar technology's solar power inverters, we are playing volume and avoiding those areas that are susceptible to price erosion due to oversupply issues and tariff compression. Excess manufacturing capacity is currently a key theme within the solar cell industry, and this is set to increase pressures on pricing even further, which will hurt the profit margins of many solar manufacturers," Horsfall concluded.