Nextenergy Solar Share Discussion Threads

[gopher] 25/11/2023 21:53

Undoubtedly cheap but the comments re growth of NAV or lack of are relevant here. My view is one is better off in a company that targets both NAV and dividend growth longer term. NAV growth recently has been impossible as discount rate has risen but that’s a temporary headwind.

Issuing new shares whilst NAV greater than share price is off table for foreseeable future so one must be looking at operating model to see where growth in NAV is likely.

I watched their presentation and not sure where they stand on NAV growth

[masurenguy] 25/11/2023 16:44

NextEnergy Solar Fund Manager says share price "unjustified" after solid interims

NextEnergy Solar Fund Ltd (LSE:NESF) Manager Ross Grier visits the Proactive London studio to speak with Thomas Warner following the release of interim results for the six months ended 30 September 2023. Grier discusses the fund's performance, noting a slight decrease in net asset value, primarily due to an increased discount rate for UK assets, reflecting the current high-interest rate market. He says NESF successfully launched the Whitecross Solar Farm (36 megawatts) in the UK and is advancing the construction of the Camilla Battery Storage asset, set to be operational in the first half of 2024.

A key achievement highlighted by Greer was the progress in NESF's capital recycling program, which involves selling assets to fund growth opportunities. This strategy was exemplified by the profitable sale of the Hatherden asset at a significant premium. Focusing on generating total returns for investors, NESF prioritises operational excellence and dividend growth, maintaining a strong track record as a dividend payer with a current target of 8.35 pence.

Looking ahead, Grier says that NESF will continue emphasising operational efficiency across its assets, advancing the capital recycling program, and integrating the Camilla battery storage asset into its portfolio. He suggests that the current share price is "unjustified" given the performance of the fund so far this year. He projects a positive outlook for NESF, anticipating a share price increase aligned with net asset value as market sentiment improves.



Disclosure: I have a holding here.

[chucko1] 25/11/2023 14:41

They have 99 assets with a wide variety of "finite lives". It's all there in the annual report. But there is more that they say about this:

they can readily extend these lives and this is a matter of "asset management". In any event, they cite potential lives of some 45 years, indicating two expenses: a) 100/45 = 2.2% implied amortisation, and b) whatever it takes to maintain the assets so that they are in such a position. But we do not see these as expenses as, being a fund, they do not produce a P&L statement which needs to indicate maintenance costs, but simply values of all balance sheet items at period end.

In practise, it appears that the strategy is also to sell and buy, so that the implied amortisations are covered by the pricing differential. Whatever is the "hidden" loss suffered by having to pay more for "newer" than they get for selling "older", it is worth remembering that they have had a dividend cover of an average of roughly 1.25x the past few years, so the spare 0.25x represents a yield of around 2-2.5%. They are targeting 1.4x for the coming year. There will also be other ways in which the asset managers can eke out a little more so that not only is there an 8pps dividend, but cash remaining to gradually transform older into newer over a long period with a blend of trading assets and use of RCF or cash balance.

The volatility of the NAV makes it impossible to be precise about all these numbers and how they have panned out - in fact, with a realised life of 40 years or more, it never will be. In that respect, the quality of management is paramount and the soundness of the underlying asset class. Neither is without risk, but the current 9.5% investor yield appears generous for the risks I see and the idea that part of this is coming from capital over the long run is far from my current assumption. It's a big spreadsheet with a lot of numbers being discounted over 26 years, where inputs such as inflation, future power costs and discount rate have very material sensitivities - this indicates the ability to pay the dividend they do over the long run, and they assume zero value for each asset upon the end of its useful life. They should do even better than this to the extent they can extend the individual lives economically.

[tag57] 24/11/2023 20:40

Topvest, I have just watched the presentation from earlier today and the average life of the subsidies is around 11 years but the life of the contracts/ assets is 26 years from what I recall.
As you state, revenues relatively protected with the decent potential of growing dividends. I am happy to take the divis.

[topvest] 24/11/2023 19:49

All infrastructure assets have a finite life unless extended. It's built into the NPV already. I suppose NESF is cheaper because of the relatively mature asset base with 11 years remaining and the relatively high use of gearing. I suspect lots of solar farms will get permission to extend at the end of their life (for a cost), but its not factored in to the NPV. On the other hand their revenues for the next 11 years are well protected for inflation. Many other assets aren't. I'm happy to take a c9% dividend yield growing by inflation and the possibility of a sale of the portfolio closing the large discount.

[ammons] 24/11/2023 16:57

I see your point and missed the discussion you speak of. However, we have (almost certainly) a Labour government here in the UK in around a year who will have to throw money at and incentivise at renewables. Given all of Ed Millibands grandstanding I dont see what else Labour can do. Land already legally in use for that specific purpose will simply be reused for housing? Farming? Left idle? Other industrial? When the "finite period" comes to an end? And alternative locations found for for the already existing renewable project? Doesn't seem likely to me.

[spectoacc] 24/11/2023 16:22

I mean that they (as in almost all the renewables ITs) don't own the land the assets are on - it's all leased. They own the right to stick solar/wind/whatever onto a patch of land for a finite period of time, usually corresponding with the useful life of the asset.

Have had the debate quite a few times & yet to get a decent counter-argument, other than that the grid connections are valuable and a likelihood of the lease rolling on new terms. But all at extra cost, when so many pay out all their earnings.

The business model (IMO) was raise, build, sweat, raise some more, repeat. Worked well when there were premiums, always extending out the life of the portfolio, but that's out the window now.

Compare to eg a trading co, where the business may grow or shrink but isn't finite. Yet always feels as if the renewables ITs are discussed/regarded as perpetual, ie talk of the income without corresponding talk of how long it might last for.

[ammons] 24/11/2023 16:15

What do you mean by "finite lives"? Assets, equipment etc will always need replacing or upgrading as they wear out over time but "finite lives"? What do you mean by this?

[spectoacc] 24/11/2023 15:45

As well as the slow progress on disposals, what puts me off buying back in (& in fairness, puts me off a lot of the renewsbles sector) is the extent to which you're just being paid your own money back in divis. ie wasting assets, finite lives, portfolio no longer being added to each year.

That's a lot worse than ex-growth - it's annuity-esque. Isn't that there's zero value at the end, there's eg the grid connections. But there isn't land value, CapEx and agreements needed to extend, and I think most deserve to be on very high yields.

Exceptions are those adding assets out of cashflows - ie not paying out anything like full earnings.

[topvest] 24/11/2023 10:27

I've doubled up today, so average price is 92p. Why? Because of a likely 8-10% tax free return from here if the share price increases on-top of the 8% expected return; and because Helen Mahy is the Chair - she is a strong lady and going to be good for this fund. Nothing wrong with the small accretive sale - it was fast and valued by a third party. 4 more assets to be sold if 1. the price is right and 2. The RCF facility is still expensive next year.
Downside is that the fund is a tad ex-growth with an 11 year average remaining asset life. That being said, I can't see NAV going much lower with the weighted average discount rate already 8% and interest rates topped-out. Indeed, NAV might start increasing a tad from here, maybe back to 110p. Once interest rates start coming-off and the share price stabilises then this could attract some more buyers. In the meantime, 8-10% tax free is nice!

[cc2014] 23/11/2023 16:06

#701

The question is whether the IT is just a vehicle to provide projects to the construction arm of the fund manager (whether they make the real money?)

[chubby chandler] 23/11/2023 15:42

NAV is at the same level now as it was in 2019 when the share price was above 120p

I'm not remotely worried, fully expect NAV to start rising and share price of 100p+ again once interest rates starting coming down next year.

[marktime1231] 23/11/2023 14:26

I question the whole idea of selling off well managed projects, in which value has been created and is being created, in order to pay down the RCF or is it really to build a funding platform for riskier investments? Co-locating storage is obviously good sense, but standalone ventures with connection issues etc? Are we to take comfort that they are thinking what to do, in the face of there being little apparent market interest in the myriad of small projects which NESF might like to "recycle".

What bothers me most is the erosion of NAV, back to where we were two years ago despite claiming progress. And the wide discount opened up here means most of us will be further underwater than your 93p. And yet income / cash flow remains excellent. So I will continue to hold in the hope things recover.

[wllmherk] 23/11/2023 13:03

I hold these at 93p so a bit underwater, however, an 8% yield for an income investor is not bad at all. I wouldn't vote for a discontinuation as very happy to keep collecting the dividends, these remain a hold in my portfolio.

wllm :)

[speedsgh] 23/11/2023 12:36

Some investors are understandably unconvinced by yesterday's announcement of the long-awaited first asset sale which turned out to be a related-party transaction.



...Liberum’s Shonil Chande said that while the uplifts were attractive, including the 57% investment return, the market would probably place more weight on non-related party data points.

However, interim results published today stressed there were no exclusivity arrangements in place between NESF and any member of the NextEnergy Group in relation to the deal or future disposals.

‘We haven’t just taken a ready-to-build solar project and thrown it over the fence,’ said chief operating officer Ross Grier (pictured below). ‘We did a whole load of value creation before taking it to the open market, where we ran an extremely deep and robust process using the normal information barriers between transaction teams,’

Referring to the fact that only one asset has been sold since unveiling the capital recycling programme eight months ago, Grier stressed it was an extremely difficult market environment not only to sell assets at the right price, but also in terms of executing a transaction.

Stifel’s Iain Scouller was concerned that the high level of leverage and slow pace of asset sales would lead to a widening in the discount and downgrade his recommendation to ‘negative’...

...The shares currently trade at a 20% discount to the latest net asset value, putting it above the 12-month average threshold of 10% at which NESF will be forced to offer a continuation vote at its annual general meeting in August 2024.

Grier said the board had not been buying back shares as it focused on its capital recycling programme and paying down the RCF.

‘Any investment decision we make beyond that will be about what is the right accretive transaction, from buybacks to bringing assets online,’ Grier said. ‘We are prepared to do buybacks and are thinking.’ He added that discontinuing the trust would not be in shareholders’ best interests.

[marktime1231] 22/11/2023 13:55

So Capital Recycling means selling a development project to another part of the same organisation? Face and palm.

[tuftymatt] 22/11/2023 09:02

Let's hope the latest figures can attract more buyers and we can get back to circa NAV once again.

Good luck all 👍🏻

[masurenguy] 22/11/2023 07:11

Interim Results & Capital Recycling Update.

NextEnergy Solar Fund has today published its interim results for the period ended 30 September 2023.

Key Highlights

Financial:

-- NAV per ordinary share of 108.3p (31 March 2023: 114.3p).
-- Ordinary shareholders' NAV of GBP640m (31 March 2023: GBP674.4m).
-- Earnings per ordinary share of (2.0p)(1) (31 March 2023: 8.2p).
-- Total gearing (including preference shares) of 46.4% (31 March 2023: 44.6%).
-- Financial debt gearing (excluding preference shares) of 29.8% (31 March 2023: 28.4%).
-- Weighted average cost of capital of 6.3% (31 March 2023: 5.7%).
-- Weighted average discount rate of 8.0% (31 March 2023: 7.3%).

Dividend:

-- Dividend of 4.18p per ordinary share for the period ended 30 September 2023 (30 September 2022: 3.76p).
-- Target dividend of 8.35p per ordinary share for the year ended 31 March 2024 (a year-on-year increase of 11%).
-- Forecasted target dividend cover remains c.1.3x for the financial year ending 31 March 2024.

Portfolio:

-- Energised Whitecross, a 36MW solar farm located in Lincolnshire.
-- 100 operating solar assets (31 March 2023: 99).
-- Total installed capacity of 933M W(2) (31 March 2023: 889MW(1) ).
-- Remaining weighted asset life of 26.4 years (31 March 2023: 26.3 years).

[tag57] 14/11/2023 15:30

It should do but one of the reasons for hold ups is also that the connection process is protected by the DNOs making it very difficult for other companies to compete in the POC process.

[marksp2011] 09/11/2023 06:52

And if it is Scottish Widows every year for the last 10 years

[apollocreed1] 06/11/2023 15:18

@chucko- Good example of your point was the large funds coming into Civitas Social housing when it was trading at a huge discount and then forcing through the takeover even though the offer was at a 20% discount to NAV. Quick turnover for them but they have the company away to opportunists.

[chucko1] 06/11/2023 13:13

I made a comment (elsewhere) about how the non-retail holders of many ITs have been shown to be the worst holders. Always (at least the past year or two) with an eye on the near-term discount and thence lower declared fund unit values etc.

Being underwater as a result of higher bond yields but without a likely impairment of cash flows really is no reason to destroy future value. Having said that, issuing these ITs and seeing nearly all go to 30%ish discounts regardless of quality is a difficult issue which has no easy solutions. Private funds with 5-7 year holding periods needs to be modified somewhat to make it accessible to retail, but I have no sympathy for funds who back these ITs and then run for cover. It messes up what could be a good market, especially considering the issues the open funds have so notably suffered.

All I can do in the current turmoil is to trade them "spivilly, somewhat", with a core holding related to the level of 10yr Gilts and UST and inflation. Quite a few parameters there, all of which have been extremely volatile - forcing frequent rebalancing. For example, EBOX and SUPR rose 13-15% in basically 2 days. Warranted on EBOX, but not on SUPR (originally a largish holding, so I sold half on Friday) - I say that even though I prefer SUPR over EBOX by some margin.

[flyer61] 06/11/2023 10:53

Thanks chucko1,

everything has its price. All it's counterparties are Investment grade entities and they are long term. I am happy with the FX risks in fact I embrace it across the portfolios I manage. The fund has only been in existence since 2019. The management company is being changed to the lot that run INPP. It seems to me it will go the same way as EPIC, taken out at a discount to declared NAV. The BOD engineering in that direction by using/declaring the lowest NAV of the range that they have been given. The divi at an operating cash level is not covered.

It is mainly institutional shareholders here and they are significantly under water.
Might start nibbling....as feel I know how it will end.

[chucko1] 06/11/2023 10:31

Flyer, I had looked at USFP a while back and passed. I cannot remember why, exactly, but I suppose I could not get comfortable with the regulatory risk relative to the then valuation.

Now, it seems that there is all sorts of noise regarding continuation, and that is a matter to be determined in the not far distance, as I understand it. Is is essentially denominated in USD, so FX risk, and the bid offer is pretty wide etc. etc.

But these are my own added risk points, and that may not be the same for everyone. And, finally, at the price, it might now be a decent one to speculate on.