Bluefield Solar Income Share Discussion Threads

[18bt] 24/2/2017 08:27

This is a very clear statement and explanation of the business model, which I like greatly. This is a core inflation-protected holding for me if held in a tax free fund.

[spectoacc] 23/2/2017 08:14

@Masurenguy - thanks for going to the effort to post that.

[masurenguy] 23/2/2017 08:00

Yes - the future prospects look good here and the yield remains extremely attractive. Excerpts from the Chairman's statement

Chairman's Statement

Introduction

I am pleased to announce another strong set of results with positive news across a broad set of measures. The long-term financing agreement with Aviva Investors, signed in September, gives the Company the strongest platform from which to deliver, over the long term, sector-leading underlying earnings and dividends. The Company now has the lowest reported cost of debt financing in the sector, the lowest investment adviser fee and the highest dividend. Last, but not least, the portfolio has delivered significant energy outperformance against expectations.

We paid a 3.25 pps first interim dividend as we have done for the same period in the two previous financial years. The NAV has risen to 105.07 pps reflecting adoption of new power forecasts, inflation expectations and our move to a blended power price forecast. There is potential for further growth in our NAV as the power price market and long term forecasts continue to improve.

My statement will focus on the five key areas that are creating or delivering a premium return for our shareholders: (i) the introduction of attractive long term financing; (ii) the continued strong underlying earnings and corresponding dividend; (iii) an increasing net asset value and attractive equity returns; (iv) an oversubscribed equity raise and accretive acquisitions; and (v) our value accretive asset management. The period has also seen the sector further mature such that it is becoming easier for investors and analysts to make more informed decisions about the absolute, and relative value, of the Company. We hope, as always, that the transparency of this document helps in this regard.

Long Term Financing

In September 2016, we announced our LTF agreement with Aviva Investors. The all-in cost of the £121.5m fixed price loan at 2.875% interest and the £65.5m index linked element at 70bps plus RPI is highly attractive both in absolute terms and relative to other comparable financings in the sector. The financing will deliver significant bottom line savings for the benefit of shareholders. Away from these financial benefits are some equally important but less heralded elements.

The loans are for a tenor of 18 years and 3 months, fully amortising over 18 years. This means that, beyond the element driven by RPI, the Group does not have any interest rate risks or bullet repayments on the LTF for the full term. We think this is in the best interests of our shareholders as we are not deferring payment day which could create refinancing risk in the future.

The agreement of the LTF means that on the Group's base case projections, the long term debt service burden is nearly 3 times covered by earnings. This conservative position has been achieved because of relatively low levels of overall leverage (c.34% to GAV*), combined with low interest rates. The Company's acquisition strategy has ensured that the right portfolio of operating assets is in place and has enabled the Group to achieve sensible conditions as part of the financing partnership with Aviva Investors that are supportive of our core strategies, particularly surrounding PPA strategy.

Underlying Earnings and Dividends

The Company has, for the third year in succession, delivered earnings in the period of 3.0 pps. Just before the share placement in November 2016, the Company paid to the holders of existing shares the earnings of 3.0 pps for the period to date, together with 0.25 pps retained from the financial year 2015/16, resulting in a first interim dividend of 3.25 pps. Underlying earnings should see further support as the impact of higher priced power contracts feed into the portfolio. The Company has matched or exceeded its cash generation or dividend objectives in each year since listing in 2013 and is, we believe, on track to do so again for the current financial year. This has enabled us to pay shareholders dividends for our first three financial years totalling 4.0 pps, 7.25 pps and 7.25 pps, respectively, and our first interim dividend for the current year was 3.25 pps. Our cash generation has also enabled us to fully cover all of our debt service requirements, both interest and the required capital amortisation.

Our income stream is inevitably seasonal and for that reason our largest interim dividend will come at the end of the summer season. However we intend henceforth to seek to smooth the profile of dividends, while retaining our key objective of increasing the total payments for the year in question in line with RPI. In the last two years it has also been appropriate to distribute a larger first interim dividend representing all our achieved cash generation, just ahead of the placing of new shares, so that a level playing field is created between existing shareholders and those subscribing for new shares. Notwithstanding our wish to offer shareholders a smoother dividend profile, in the event of future placings and a consequent need to distribute accumulated earnings ahead of the issue of new shares we would expect to revert to the historic pattern of dividends.

Net Asset Value & Equity IRR

The NAV has risen from 99.39 pps at 30 June 2016 to 105.07 pps at period end. This principally reflects the adoption of an assumed 2.75% RPI assumption and an increase in power forecast including the adoption of an equal blend of power curves from the two leading forecasters in the market. We have taken this step to reduce the timing risk associated with using a single curve in the more volatile market environment. We have also fallen into line with the sector on rising inflation expectations and have moved to a long term inflation assumption of 2.75% (formerly 2.5%).

Apart from this, all other assumptions are substantially unchanged. The Company's WACC discount rate remains at 6.6%. The uncertainties in the financial and economic climate from the Brexit decision, and an increasingly uncertain picture globally, have contributed to our decision to remain conservative in our approach to discount rates and other valuation parameters. This reflects our market expectations of WACC, rather than our own position, which following our refinancing is at a significantly lower level. Based upon the actual cost of debt achieved by the Group, the implied equity return (or 'equity discount rate') of the NAV is 8.3% at portfolio asset level netting to 7.1% after all group level costs.

Fundraise and Acquisitions

In October 2016, we completed a short, and oversubscribed, equity placement of £60.6m. This was raised in order to fund the acquisitions of a series of primary assets identified by the Company's Investment Adviser. In addition to the operating portfolio of just over 400MWp, the Company added a further five plants (currently under construction) committing £22.8mn for an energy capacity of 22.6 MWp during the period. The Company's first rooftop plant, a 0.5MWp industrial array constructed in 2011 and accredited under the 2011/12 FiT scheme, was also acquired in the period for a commitment of £2.2m. This investment approach continues the strategy adopted by the Company since IPO of seeking to find and fund assets through construction.

Our business model has delivered a high yielding portfolio of assets which, we are confident, will stand the test of time and deliver strong and growing dividends for our shareholders. As the market moves to an exclusively secondary market we can already see that the price of assets reflects a lower expected yield than has been the case in past years. Therefore, we intend to retain our discipline in only investing further into assets that are accretive to our shareholders' returns. We do not have to search for dilutive acquisitions and, as our model is essentially a 'full pay out' model, we do not have retained funds that will need to be reinvested. However, if we do identify further attractive assets, we are confident that they can be financed, without return dilution, through further equity and debt issues, offering attractive returns and with low cost of debt.

Asset Management

There has been very strong operational outperformance over the period driven by a high-quality portfolio (illustrated by low levels of contractual claims in the period) and high levels of energy generation (4.6% ahead of expectations at 185.1GWh versus a target of 176.9GWh). As the Company matures, asset management will become of increasing importance to us. It is an exciting area for shareholders and one where the value-enhancing activities being undertaken by BSL, the Bristol based technical asset manager, are just beginning. They are working on a number of strategies that carry no risk to the Company's generating potential but could, if the economic case is compelling enough, be valuable to the Company and accretive to future revenues.

Accounting

An amendment to IFRS 10 - Investment Entities: Applying the Consolidation Exemption (Amendments to IFRS 10, IFRS 12 and IAS 28) as issued in December 2014 has been adopted by the Company for these financial statements following adoption of the amendment by the EU in September 2016. This requires the Company to prepare IFRS financial statements which do not consolidate any subsidiaries that are themselves investment entities. In order to provide clarity to shareholders, we have prepared pro forma financial information on the same basis as the Company's 30 June 2016 financial statements, which has been designated the Investment Basis, to facilitate a comparison of financial performance with prior years. Further explanation is provided in the Financial Analysis section.

Outlook

With current dividends of 7.25 pps the Company offers shareholders very good value. As more investors become familiar with the sector, and competition for a predominantly fixed base of solar PV assets increases, this should have a positive effect on the Company's NAV and share price. We have an improving backdrop in terms of the power markets and the capital structure in place that works well in a lower inflationary environment and is highly attractive in times of a higher inflation market. It is almost impossible today to find a financial product in the UK offering the potential for index linked returns in excess of 7% that are largely independent of capital market behaviour.

We are also only beginning the enhancement of the asset management journey, where we expect, over time, to see continued incremental improvements to generation. BSL will continue to explore all avenues for potential revenue enhancement for the benefit of our shareholders. One simple, but important, discipline for the Company is that, as the market moves to being a secondary market, assets will be selected for acquisition only if they are accretive to our earnings and dividend returns. We are conscious of the views of our shareholders and our aim is to deliver the best possible returns over the long term and this is more important to us than growth for growth's sake.

[nimbo1] 23/2/2017 07:41

nice results

[rambutan2] 16/2/2017 18:17

And NESF has just done so - and the wait was (relatively) costly...

[rambutan2] 16/2/2017 18:07

BSIF also borrowed long and low:

[a0002577] 16/2/2017 15:19

FSFL is probably the most interesting of these because they have borrowed at extremely low rates - see

Means that less goes on paying interest and hopefully more on dividends.

[spectoacc] 15/2/2017 08:59

No idea, but might explain why I'm in the former and not either of the latter ;)

Premium on BSIF about 3.5%; NESF 6.2%, FSFL 4.2%. Hard to call much from sizes (all similar) or gearing - NESF barely geared at all [actually 33% according to Factsheet], BSIF & FSFL both 40-45% geared.

They're subtly different in assets & lifespan I guess - BSIF is more like an annuity stream, sweating the assets for 20yrs+ & with either residual value at the end, or restructuring/buying more along the way.

I don't follow NESF or FSFL closely enough to know how "permanent" they are, but that could well account for the difference in yield. NESF very much focussed on southern England. Must admit I looked at all 3 previously but would have to read up on all again.

All figs from HL.

[masurenguy] 14/2/2017 08:41

Any explanation why the yield here of 6.9% is higher than 5/7% on the other solar funds, NESF and FSFL?

[18bt] 09/2/2017 09:22

Interims on 23rd. I wonder what their reaction will be to a little relaxation in the Govt's position on FIT?

[nimbo1] 24/1/2017 10:13

A good place for some high income exposure - directors have been buying in volume recently.

[tonytyke2] 20/1/2017 10:35

big buys today......I hold also

[nimbo1] 08/12/2016 16:16

I made this my largest holding at 1.02...something I never thought I would do but with regards to my portfolio it helps me sleep at night!

[spectoacc] 04/10/2016 07:24

Results read well, & the low-ish NAV reading doesn't include the post-year end activities:

"Whilst the all-in cost of the long term financing achieved of 2.875% on the fixed tranche and 0.7% plus RPI on the indexed tranche is very favourable compared to the 450bps assumed in the year end valuation methodology, and the July 2016 power forecast suggests an increase in prices in the long term, both were confirmed after the year end. Your Board, therefore, considers it inappropriate to reflect these recent events in the June, 2016 balance sheet."

Still at a premium to NAV but considerably lower than infrastructure trusts.

[spectoacc] 27/9/2016 09:33

Bought more based on that debt renegotiation - amortising over 18 years and I still don't believe there'll be nothing left over by then - it'll be like Trident, frequent extensions to asset life!

[spectoacc] 27/9/2016 07:15

"Bluefield Solar Income Fund Limited Long Term Financing Terms & Trading Update" - can't really see anything in it on the "Trading Update" side? But good news on debt, nearly 3x covered & well below previous 450bps.

[spectoacc] 27/8/2016 11:34

Having slept on it:

1. Gearing. Isn't an issue in and of itself, but is insofar as paying the loan interest effectively has the first call on the income. So if anything went wrong (subsidies being just one example) the loan gets serviced ahead of returns to shareholders.
2. Wasting asset - not convinced this has to be the case, but taking what they say at face value - something like BRCI (8.2% divi, 3% discount, mainly commod/oil shares) seems a better bet. No express RPI linkage but if the portfolio isn't worth double in 20 years (as opposed to zero) I'd be surprised (they achieve their very high yield in part through writing options). Are other examples of 8% yielders that won't disappear, eg AEWU, though each with pros & cons. Still, the point remains - can get higher than BSIF's yield without having to own a wasting asset.
3. Dilution through more share issuance.

Any bear points I've missed?

[spectoacc] 26/8/2016 16:44

Must admit I haven't read all of the 61 pages of the annual report - maybe about 4 of them. Like the yield, like the relatively low charges. Uncertain about post-EU changes to subsidy, uncertain about any fallback position should anything go wrong (eg full-field outages - are they insured?), as well as the gearing. Also not convinced 7% pa for 20 years, then potentially nothing, is much of an investment.

On the other hand - they seem very proactive, they've delivered on the dividend so far, and unlike some of the other renewable ITs, aren't on a silly premium.

No holding as yet but got on the watchlist

[a0002577] 24/8/2016 15:08

It is rather interesting to look at this presentation by FSFL (also solar).



In particular Slide 9 is VERY interesting taking a longer term view

[rambutan2] 24/8/2016 01:18

Noted that Foresight (FSFL) recently closed on a long term debt facility, as BSIF are currently looking to do, at a rate of 2.6%. Well below BSIF's modelled assumption of 4.5%, as set out (pg24) in the excellent interim report linked below.

[rambutan2] 22/8/2016 16:57

The Euro fund never happened. But this one trades around par and has payed out as promised, so far.

Updated nav etc, reflecting yet another fall in power price curve.


But div remains on target.

[jonwig] 13/7/2015 07:11

They are looking to float a Euro fund (€ denominated):



Italy and Spain to start with. Not in Greece, they say!

[wirralowl] 09/7/2015 15:08

Yeah, TRIG's RNS was clearer, but the fall's probably about right here, if not a little generous. Hopefully its not significant enough to affect their targetted dividend payments, but again unlike TRIG, they don't actually confirm that.

[jonwig] 09/7/2015 14:15

Not quite so definite, is it (compared with TRIG)?
2p - 3p drop looks about right.

[wirralowl] 09/7/2015 13:40

RNS Number : 6137S

Bluefield Solar Income Fund Limited

09 July 2015

9 July 2015

BLUEFIELD SOLAR INCOME FUND LIMITED

Changes to the Climate Change Levy

Bluefield Solar Income Fund Limited (the "Company") notes yesterday's announcement by the Chancellor of the Exchequer in the Summer Budget 2015 (the "Budget") regarding the removal of the exemption for renewably sourced electricity from the Climate Change Levy from which many renewables projects in the UK benefit by way of the sale of Levy Exemption Certificates (LECs). This will be effective from 1 August 2015. The Budget also proposed future reductions in UK corporation tax.

Bluefield Partners LLP, the Company's Investment Adviser, has reviewed the Company's portfolio and can confirm that LECs make up 3-4% of total revenues in the Company's portfolio. The impact of the loss of LEC revenue will be partially offset by the expected reduction in corporation tax. The majority of the Company's revenues are derived from the regulated revenue from the Renewable Obligation Scheme, which remains unchanged, and by selling the generated electricity under power purchase agreements.

An independent valuation is currently being undertaken for the Company's portfolio for the year ending 30 June, 2015, which is expected to be announced in conjunction with the Company's annual accounts.