Nextenergy Solar Share Discussion Threads

[yump] 23/11/2024 09:40

My water feature?

[sleveen] 23/11/2024 08:43

marktime1231

"...it rained so hard in Spring and early Summer it flooded or otherwise knocked out transformers at several sites. The kit doesn't work in wet weather!"

Name one electrical appliance that works when it is flooded.

I'll wait.

[bagpuss67] 23/11/2024 08:38

Excellent debate. Thanks all.

[masurenguy] 23/11/2024 08:24

NextEnergy Solar Fund: 11% dividend yield, share buybacks & future growth plans

Investment director and UK legal counsel Stephen Rosser talked about the fund's latest developments, including highlights from its interim results. Rosser shared that the fund generated £45m in cash from producing nearly 600-gigawatt hours of clean electricity. He emphasised the fund’s 11% dividend yield and its strong cash coverage, which enhances its appeal as an attractive investment. Rosser discussed the fund's efforts to narrow the discount to net asset value through strategies such as a £20m share buyback program and a capital recycling initiative. He revealed the completion of phase three, which included selling the 50 MW Staughton asset for £30.3m — a 21.5% premium to its carrying value. He also outlined a positive outlook for the renewable energy sector, citing government commitments to clean power and a promising pipeline of projects within the fund. "Plenty of reasons to be positive and potential to drive value for shareholders," Rosser remarked. The company remains focused on disciplined capital allocation and delivering cash-covered dividends.

[marktime1231] 22/11/2024 23:33

Read the report, pp40-41 and pp60-61. There have clearly been issues which go beyond degraded insolation, and the report states there have been outages due to several transformer faults.

Yes we are being more sceptical, because of the way things are going. Rightly or wrongly. We should perhaps have been challenging everything we were told and been more critical before now.

Has anyone spotted an explanation of where group debt interest costs are accounted for yet?

[aleman] 22/11/2024 20:57

marktime1231
22 Nov '24 - 19:45 - 1172 of 1173

Incidentally the generation deficit was 4.5%, not because of low sunshine but because of "humidity" - it rained so hard in Spring and early Summer it flooded or otherwise knocked out transformers at several sites. The kit doesn't work in wet weather!

I can't find the passage that you refer to but humidity and cloud/rain are separate issues with regard to solar panels, I believe. High humidity under clear skies can reduce solar insolation by as much as 10% at equatorial latitudes (less nearer poles?), I believe, so warm and humid southerly winds would reduce effiency whereas cold and dry northerlies would see limited efficiency loss. This is without a cloud in the sky. Humidity can also reduce efficiency by causing condensation on panel surfaces and ageing some internal components faster.

Clouds and rain reduce output by much more than humidity but they scatter over a wide spectrum including visible light while humidity scatters in a narrower infrared range but little at the ultraviolet and shorter wavelengths.

I could be wrong on this but that is my understanding. I'm new to learning about the technology with this investment though I have a scientific background that should allow me to understand it.

[yump] 22/11/2024 20:19

Is it appropriate to deduct 17mln though, unless they are fibbing that its instead of income from the holding cos?

Also may be worth considering the worst case of dividend being cut to what would still be a good level vs gilts.

These issues only seem to have appeared since the share price dropped and thats in common with loads of other income stock trusts.

[marktime1231] 22/11/2024 19:45

p77 Cash Flow Statement

Net cash generated by operations £28M

From the £45M somehow there has to be a deduction for group interest costs on the RCF etc, which for some reason does not show in any of the headline figures on p47. It reports £45M as cash income, but that just seems to be a multiple of 595 GWH hours generated x the mostly fixed £76/MWh revenue rate. Deduct £3.9M management fees and costs, £4.7M for Pref Divis, and £4.6M for Buybacks. And deduct something like £17M which SteMis has spotted described as intercompany loans and in my mind represents debt interest costs being recharged to the operating companies. Hidden away in the smallprint.

Incidentally the generation deficit was 4.5%, not because of low sunshine but because of "humidity" - it rained so hard in Spring and early Summer it flooded or otherwise knocked out transformers at several sites. The kit doesn't work in wet weather!

You may also note the company burned £8M net cash in the period, which looks to me a bit like an expression of the deficit of income versus shareholder returns.

So actually dividend cover from net cash generated by operating companies less group costs is only 78%, and dividend+buyback cover is only 68%. And that is before the sale-in-process of a further 100MW assets. And that is before the revenue rate is expected to tumble to the £50s/MWh in two year's from now.

Lots of other things jumping out at me as I read the report, which I will do again over the weekend and suggest you do the same. It looks like SteMis has a point and we should appreciate the message not shoot the messenger.

Dividend cover from cash flow of 1.5x is a myth, a false presentation, and in any case is not sustainable for much longer. No wonder the discount is so wide. It feels like we are being misled.

[yump] 22/11/2024 17:30

kernelthread

Didn't see that - would explain the appearance of that payment.

Er, maybe its opaque to me because I'm being lazy digging

[sleveen] 22/11/2024 16:45

Of course the £29m in D&A is a non-cash item so that's an extra £29m right there.

[kernelthread] 22/11/2024 16:31

At the top of page 47 it says, "During the period, the Company commenced receiving
cash returns in the form of repayment of intercompany
loans in preference to investment income."
Isn't that just a tax-avoidance device to reduce the subsidiaries' liability to corporation tax?

[perfect choice] 22/11/2024 16:25

Plenty of discussion on results and financials I see, haven't had time to digest all opinions yet, but if you have questions or want more clarification, then you have the opportunity on the 26th November.

NESF have a video presentation on the interim results at 2pm GMT on the 26th at investormeetcompany.com. Just register and book yourself in and you can submit questions in advance, or even during the presentation, which I've done for other shares in the past.

Presenters are Ross Grier - Managing Director and Stephen Rosser - Director

Link to meeting:

[sleveen] 22/11/2024 16:07

Total revenue from solar PV is £88m. (Pg 47 interims)


That's the statistic that nobody's mentioned.

Lack of consolidated accounts make smoke and mirrors look transparent. There's the rub.

[stemis] 22/11/2024 16:06

To be fair to NESF, they do disclose some info about the performance of their subs.

Based on that
EBIT subs - £41.227m
Topco costs - £(3.741)m
Interest costs on £332.35m debt, - say £(7.0)m?

Gives Group PBT ~ £30.5
Deduct 25% tax gives £22.875m
Deduct divs on prefs of £(4.763)m

Gives retained profit of £18.1m, covering dividends of £24.754m by 73%

Assumes all sub holding co costs in there somewhere.

[yump] 22/11/2024 15:44

I'm just interested in following the money. The NAV, as has been said, could be conjured up in various ways, good or bad and no way of telling which.

So, there must be a way of simplifying the state of the dividends - which is presumably why a lot of people invest.

So knock the 15mln inter-company load repayment off and dividend cover would be 1, based on cash receipts.

At March 24, cash reported as about 9mln, so presumably some of that can act as providing slightly more dividend cover for the first half.

[tialouise] 22/11/2024 15:28

Are you invested in gsf by any chance . I think you maybe , shocking chart

[chucko1] 22/11/2024 15:13

@Specto, I agree in part with your assertion that these assets are, by definition, wasting, and one has effectively bought a high yielding annuity. However, the free cash pays the dividend and there appears to be an excess which, when combined with the sale/replacement of assets at some "capital deployed per year of operating asset extension" accounts for the maintenance of the in situ assets.

This is why they sometimes refer to the extension of operating life of assets, and this feeds into the same equation.

In other words, it would be, as you say, an annuity were it not for the fact that the portfolio is not/will be static. It is the change in portfolio and its changing financial attributes which will prove (or otherwise) the model. At least at the current valuation, you're paid pretty well for the uncertainty.

As for the NAV, I don't give a stuff. Not a surprise coming from me, but especially so given that the value of each asset depends on such volatile input parameters. At least with Real Estate, you have a firmer grasp on future incomes. My eyes are focused on the number of MWh generated and at what average price - and how that is incrementally secured, period by period. The rest is less important, although sales above book are nice, so long as replacement is available at a lower value per remaining year of expected life.

[spectoacc] 22/11/2024 14:49

"I'll re-iterate that I don't think NESF is necessarily any more opaque than the likes of SEIT, GSF, GRID and I don't particularly have a view as to whether it is under/over valued. I just think the way it's presented makes it hard to know."


Agree with that. And all are cheaper than they were.

A final point - if you're getting 11% of your capital back every year (if, as DGI9 and others proved), then it's not long before your investment is paid for, even assuming some of these are more annuity-like than trading business-like.

[stemis] 22/11/2024 14:39

Isn't the £45m the gross revenue received in payment for power generated?

No

[stemis] 22/11/2024 14:38

Marktime1231

The income for the period was as per the NAV dcf model, or actually below because they revised NAV downwards. How much the half year income failed to meet expectation is not explicit, but the report did say down from £50M to £45M yoy, not just lower prices so less sunshine too. If there had been a surplus income it would have shown as a positive increment in the NAV bridge, but all we got was a decline from weaker price outlook and "project actuals" which I think means cost overuns.

And yet they scream in the headlines that net income and cash flow covered the dividend 1.5x, which implies a massive surplus. Doesn't it? Something doesn't add up, even if it is just in the telling. Maybe concentrate then on disappointment in the NAV decline.

My opinion, for what it's worth.

The £45m is nothing to do with the income in the NAV dcf model. It's just the cash received by the holding company not profits generated by the subsidiaries/SPVs. It's analysed on page 103 of the interim report and (as I said in my last post) includes a £15m intercompany loan receipt.

The reason I'd speculate that income in the topco doesn't form part of the NAV bridge is because it's all intercompany and the NAV's are calculated before intercompany charges. So to include the receipt would be double counting (since the payment isn't counted in the subsids NAV calculation). On the other hand the outgoings from the topco (costs and pref divs) are not intercompany so are included in the bridge. `

[kernelthread] 22/11/2024 14:31

Isn't the £45m the gross revenue received in payment for power generated? At 595GWh generated in the 6 month period, that would equate to £75.63/MWh, which seems about right. In that case you have to subtract interest on loans, operating expenses, fund manager fees etc. to arrive at the free cashflow from which dividends can be paid.

[stemis] 22/11/2024 14:28

I'll re-iterate that I don't think NESF is necessarily any more opaque than the likes of SEIT, GSF, GRID and I don't particularly have a view as to whether it is under/over valued. I just think the way it's presented makes it hard to know.

[ammons] 22/11/2024 14:24

As a holder here, I appreciate Stemis's points of view, even if negative.