Gcp Infrastructure Inves... Share Discussion Threads

[williamcooper104] 10/6/2021 17:38

Yes it does seem uniquely toxic

[apollocreed1] 10/6/2021 15:54

@swisspaul- The current NAV is reached by forecasting future cash flows and discounting them to the present (Google "discounted cash flow" for an understanding of the calculation). So higher corporation tax, for example, will mean the future cash flows are less than they were previously forecast to be, so the DCF calculation from last year has to be revised.

[apollocreed1] 10/6/2021 15:51

I suspect they "kitchen-sinked" this report and the NAV is reflecting the worst case scenario of declining long-term power prices and rising corporation tax. I'm still puzzled as to why a debt-company is exposed to declining power prices -don't the operators of renewable infrastructure have to repay their debts regardless of the price at which they sell their power?

[swiss paul] 10/6/2021 12:31

Have they started to stash the cash as a result of this?

It has been a challenging six months for the Company, principally driven by revisions to long-term valuation assumptions. The Company's income and net asset value have been impacted by reduced valuations resulting from the announcement of an increase in the corporation tax rate from 19% to 25% from 2023, reduced long-term electricity price forecasts and lower OBR inflation forecasts published in the period. As a result, the Company generated income of £11.2 million and profit of £3.8 million. The net asset value reduced by 3.2 pence per share and the Company's total shareholder return1 was -8.8% for the period.

How can a previous 6 months valuation be reduced due to something that is going to happen next year?
Can someone educate me please.

Yes I agree Biomass is not the answer - if domestic potentially but not commercially

[chucko1] 25/5/2021 22:09

There seems to be trouble almost wherever biomass is part of an investment portfolio.

[stewart64] 25/5/2021 22:06

Over the expensive cost of such projects and questionable green credentials . Tbh I was going to edit that out, as there is always noise around Biomass and stick to the point on the chart.

hxxps://news.sky.com/story/climate-change-contentious-plans-to-remove-emissions-could-actually-increase-them-report-warns-12316090

[chucko1] 25/5/2021 21:39

What was the story on biomass?

[stewart64] 25/5/2021 21:21

Biomass under attack again this week in the news ( 10% of portfolio). Also we have the post ex Dividend dip to deal with, which tends to hit lows around the following month..21st December...103.8. 5th March...97.0. Not boding well for June, chart patterns not set in stone though.

[ptolemy] 18/5/2021 10:22

Yes, thanks for comments on leveraged debt. I note that green tech projects react more significantly (read adversely) to upward interest rate moves than brown tech. I, too,
took the divi and sold.

[panshanger1] 14/5/2021 11:59

Thanks for recent postings much appreciated

[speedsgh] 14/5/2021 11:14

Thanks for the link. Note they have also published a couple of answers to questions that they didn't have time for in the Q&A section of the presentation...



Answers to the questions from Philip Kent –

You recently agreed a new RCF. How has this impacted your overall cost of debt? And how geared is the portfolio?

The recent RCF saw a slight increase in margin (190 bps to 200 bps) and base reference changed from LIBOR to SONIA in anticipation of the cessation of LIBOR at the end of this year. We believe the increase in margin is reflective of an increased cost across the market of this type of debt. The RCF capacity is £165m and this is materially fully drawn at the current time. Debt across the portfolio varies depending on sector. There is a summary of this on pp 35 of the annual report.

What does your investment pipeline look like? And what impact do you think there might be on the portfolio’s yield from further acquisitions?

The pipeline is currently as strong as it has been in recent years. We are actively reviewing c. £150m of opportunities at various stages. There are both: (i) a number of investment opportunities in existing assets; and (ii) new investments in existing asset classes (principally anaerobic digestion and biomass) and some new areas. We are seeing new public sector support emerging – such as the Green Gas Support Scheme which is due to be launched later this year, that we expect will drive further pipeline opportunities.

[rik shaw] 14/5/2021 09:38

This weeks presentation is now available online:

[williamcooper104] 12/5/2021 21:58

Thanks for that - it clarifies what I'd suspected At least with TRIG you get the possible upside along with the downside power price risk Power prices could easily go either way in that the demand for power is unprecedented due to electric vehicles but equally there's never been more spent in new generation and the cost of renewables and so eventually the cost of power will keep falling I prefer SEQI for infra debt and HICL/BBGI for boring but safe infra equity

[jonathan49] 12/5/2021 21:05

Hi, I too attended the presentation. I put my question in before they started and pleased to say that they did answer it as some of you heard. I am disappointed that they had not flagged more clearly that the older loans are compromised due to an insufficient equity cushion and the fall in the long term power price forecast. Some of the older loans are also against assets with difficult operational issues such as biomass and anaerobic digestion. On page 20 of the last half year report there is a chart of NAV vs power prices which shows 6% of Nav lost per 10% of electricity price drop. I believe that this chart was new in that report indicating to me that they had previously thought that they had enough equity for the loans not to be affected by power price forecast downgrades. I guess we have taken most of the first 10% drop now and presumably it is a straight line down if there are further electricity price forecast downgrades. I therefore agree that it seems unlikely that the target income level can be maintained in the long run. The government will need electricity prices to be low in the future because in order meet CO2 objectives most houses/cars will need to be heated/powered by green electricity and people need to be able to afford it. A further concern of mine is given that GCP continually needs to reinvest as capital is returned from the amortising loans, the fund is also dependent on future opportunities being available which meet the target return level, however the returns from energy projects are highly uncertain. The risk reward profile of this fund is not what I thought and so I sold my complete holding after the presentation. I also hold TRIG (A bigger operation with 100% renewables rather than 60% in GCP infra) and suspect that the same issues will apply, though I believe TRIG holds the whole project capital rather than debt only.

[stewart64] 12/5/2021 13:52

They should have made it a bit clearer why electricity prices affect nav earlier imo. Either they were adjustable loans or all the debtors were not premium. Appears to be the latter.

[williamcooper104] 12/5/2021 13:02

Don't see how they can get their historic yields out of senior debt, unless they apply a lot of leverage to juice the return

[rik shaw] 12/5/2021 12:53

Interesting presentation this morning. Hopefully it will be posted online in due course. In terms of price risk apparently they have some subordinated loans from a few years back in which the equity cushions, which should protect the loans, are no longer there, so they have marked down the NAV on these loans. They claim to target senior debt these days for their higher risk investments to ensure a better buffer.

[stewart64] 11/5/2021 11:21

Bit of a falling knife again whence fundamentals go out of the window.
Chart is getting very predictive with falls running into and following the ex dividend. October 117 to December 104, January 111 to March 97, April 105 to ?

[stewart64] 10/5/2021 14:56

Jonathan49, would be grateful if you could report back on your findings. Thanks.

[jonathan49] 10/5/2021 14:10

Many thanks,
have signed up.
I am not sure the loans are necessarily risky in terms of default so long as there is a decent equity cushion, just that coupons vary with power price which does of course reduce risk for the equity holders. Hopefully the seminar might answer it.

[speedsgh] 10/5/2021 11:35

For those existing/prospective shareholders that have lingering questions/doubts, the QuotedData Specialist Income webinar this Weds would be the perfect opportunity to find out more. Phillip Kent (director of Gravis & lead fund adviser to GCP Infra) is presenting for approx 40mins from 09:30 and those registered can submit questions in advance via email (and possibly online during the webinar?).

[williamcooper104] 09/5/2021 21:38

That's the conclusion I came to as well - that NAV sensitivity to power prices means that the loans are very risky

[jonathan49] 09/5/2021 21:04

Hi,
I am new to this thread but have been studying the annual reports today. I can find nothing to describe the terms of the renewables loans made by the fund. They have however published charts to show the relationship of power prices and NAV. I wondered if the discount rate applied to cash flows was the driver of the NAV behaviour but the discount rate actually improved in one quarter (lower rate) but the NAV reduced due to power price effects. So it seems that the equity cushion must be close to nil which would create a very high risk loan or the interest paid on the debt does indeed vary with power prices. If this is the case, then it should have been made much clearer when advertising that this a debt fund. GCP needs to explain what is going on and give us a typical example of the loan terms which are are driving the NAV behaviour.

[stewart64] 07/5/2021 17:53

Williamcooper has made a good point regarding this debt not being plain vanilla. As the debt is very low risk then the sensitivity to power prices should only be borne by the equity stakeholder on nav. These nav write downs simply make no sense if these are plain vanilla fixed loans at 8% over 13 years on average. Can anybody here shine a light on why these nav write downs have been so severe. The Market is confused, I'm confused... I can only assume the interest rises or falls with power prices. ( the inflation protection bit) ?

[ptolemy] 06/5/2021 12:00

Today, ex-divi.