Millennium Management's largest positions in 3Q 2013

Millennium Management buys PPL, BHI, AEP, CMS, and SRE and sells DRYS and NYCB—13F Flash A

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Millennium Management is a global investment management firm with approximately $20.1 billion in assets under management and offices in the United States, Europe, and Asia. Founded in 1989 by Israel Englander, it employs a global multi-strategy investment approach, opportunistically engaging in a broad array of trading and investing strategies. It’s structured to allocate capital globally across a diverse set of strategies involving a variety of predominantly liquid asset classes. It focuses on generating uncorrelated returns by engaging and overseeing over 140 specialized trading teams, each of which pursues specific strategies.

In this seven-part series, we’ll go through some of the main positions Millennium Management traded this past quarter.

Its largest buys in 3Q 2013 were PPL Corp. (PPL), American Electric Power (AEP), CMS Energy (CMS), Baker Hughes Inc. (BHI), and Sempra Energy (SRE). It sold Dryships Inc. (DRYS) and New York Community Bancorp Inc. (NYCB).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Why buy PPL Corp. (PPL)?

PPl Corp reported 3Q 2013 operating earnings per share of $0.66, below analyst estimates. The 8% decline year-over-year in earnings was due to weak results from the company’s Supply segment but was partially offset by improved performance at the Kentucky Regulated, U.K. Regulated, and Pennsylvania Regulated segments. The decline in the Supply segment was primarily due to lower baseload energy prices, lower baseload generation, higher operation and maintenance expenses, higher income taxes, and a dilution of $0.02 per share. This decline was partially offset by higher capacity prices. The company posted total revenue of $3.1 billion, up 29.2% year-over-year due to an increase in sales of utility and unregulated retail electricity and gas.

PPL expects lower earnings per share in 2013 compared to 2012, primarily due to lower earnings in the Supply segment and expected dilution of $0.25 per share associated with shares related to the 2010 and 2011 equity units and the April 2012 forward stock sale that settled in 2013. This decline will be partially offset by higher earnings in the three regulated segments. PPL increased its 2013 forecast of earnings from ongoing operations to a range of $2.30 to $2.40 per share as a result of the continuing strong performance of its regulated business segments.

The company announced in November that all its Western Power Distribution (WPD) subsidiaries in the United Kingdom have been considered for “fast tracking.” Fast tracking affords several benefits to the WPD subsidiaries, including the ability to collect additional revenue equivalent to 2.5% of total annual expenditures during the eight-year price control period, totaling approximately $35 million annually, greater revenue certainty, and a higher level of cost savings retention.

In November, the company declared a quarterly common stock dividend of $0.3675 per share, payable January 2, 2014.

Despite the slight dip in earnings, an attractive valuation and a robust dividend yield make PPL a buying opportunity.

PPL Corporation, with revenue of more than $12 billion in 2012, is one of the largest companies in the U.S. utility sector. The PPL family of companies delivers electricity and natural gas to about 10 million customers in the United States and United Kingdom, owns or controls more than 18,000 megawatts of generating capacity in the U.S., and sells energy in key U.S. markets.

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Millennium emphasizes diversity in asset classes, industry sectors, and geographic boundaries and it invests in a variety of domestic and foreign equity and debt securities, asset-backed securities, currencies, futures and forward contracts, options, and other financial instruments. Its approach is to prioritize capital preservation. It aims to achieve absolute returns, rather than outperforming a given benchmark or asset class. It capitalizes on opportunities in a diversified portfolio while minimizing risk. An important feature of Millennium’s approach is that it doesn’t make firm-wide, concentrated investments. Each of its trading teams focuses on the specific opportunities and strategies it specializes in, subject to the company’s overall risk management and hedging of aggregate exposures where appropriate.

Millennium founder Israel Englander has over 35 years of experience in securities and derivatives across a broad range of instruments and strategies. A Brooklyn native, Englander earned a B.S. in finance at NYU before dropping out of the university’s MBA program to work full-time on Wall Street as a trader and floor broker at the American Stock Exchange.

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