Sold Fortum

I have been trimming down our position in Fortum (Nasdaq Helsinki: FORTUM) during the last 12 months as in my view there has not been much upside potential left for quite some time now compared to the situation 2-3 years ago when the stock was trading at a lot lower level and offered nice asymmetric risk/reward potential then.

Today I decided to sell the position completely. The final trigger was news that the next Finnish cabinet will very likely be formed around the political left including the Greens of Finland and the Centre Party.

In my view this combination is the worst combination possible from the view point of Fortum, where Finnish state is majority owner with over 50% stake. To boot, the cabinet would be backed by the most anti-nuclear parties there is in Finland. While I do not think any of the parties will propose ramping down the existing plants, getting them replaced eventually would likely require another kind of cabinet setup.

In terms of plants in Fortum's portfolio, the likely political "hot potato" will be the vast number of coal plants owned by Uniper where Fortum now has a big stake. The bombardment to "shut down" has already started from the finnish environmental groups (even though the plants are not even in Finland!).

Overall the political ambition level towards changing the energy mix is a bit too high, which may manifest in hasty decisions which may have unwanted consequences in the energy market.

However, Most of all it's just the socialist agenda that is in my opinion the big problem. The cabinet will not be shareholder friendly (of any company - listed or not). On top of that, there is a history of cabinet officials meddling with Fortum at least indirectly (via meddling with the board and other governance structures).

My all time favourite meddling was related to Fortum options. The politicians failed to oppose very lucrative option deal at the time when it caused the dilutation (when options were issued) to share holders. It was only when the the options were sold at huge profits that the scheme became a massive political problem.

The funny thing is that once dilutation had taken place, it was actually good for the state that the options had value. Most of the money from the options came back to government because of the ~60% tax rate for very high income individuals.