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• Renewable energy is expected to be the fastest growing fuel category over the next 10 years, and we see natural gas growing as a companion to renewables due to its abundancy and varied use applications.
• Historically, when inflation and interest rates have risen, the Energy sector has outperformed the broader market.
• As commodity prices rise, many hydrocarbon energy-producing companies should generate rising levels of cash, offsetting the negative inflationary impact on consumer purchasing power.
• Natural gas utilities’ earnings growth is expected to strengthen due to the growing importance of natural gas and its usage, an increasingly accommodative regulatory environment, and a large undertaking in pipeline replacement and modernization.
• The projected annual earnings growth for natural gas utilities should double from its historical 3%-5% to 6%-8%.
• We see the reopening of the economy driving a rise in energy demand of all kinds, which should be beneficial for midstream pipeline companies and LNG exporters.
Hennessy Gas Utility Fund Highlights
• Since the Hennessy Gas Utility Fund’s inception over 30 years ago, there has been no significant correlation between the Fund’s performance and the direction in interest rates.
• Within the Fund, 45 out of 48 companies pay a dividend. The average dividend yield of those companies is 3.55% as of 2/20/22,1 with a 4.2% average 3-year growth rate.
Energy Companies Appear Attractively Valued
• U.S. Exploration and Production (E&P) companies trade at a 65% discount to the S&P 1500 on an EV/EBITDA basis, which is larger than the 5- and 10-year average discount of 45% and 35%, respectively.
• Sector MLP valuation is currently trading at 8.1x on an EV/EBITDA basis using 2023 figures, which is 14% below the average valuation range of 9.5x on a 5-year average historical basis.