The Renewables Infrastru... Share Discussion Threads

[alan pt] 16/10/2023 17:48

A downward path in sight for interest rates should do it

[seanyboy] 16/10/2023 12:32

What do you think is required for renewables to come back in vogue? Is it just the economic climate or is there more to it? TIA

[alan pt] 06/10/2023 15:00

Well, my limit just triggered, so I'm in for just under £1, surely got to be decent value at this price???

[pinemartin9] 02/10/2023 16:55

This is starting to get interesting again. Had it on my watchlist for quite a while now. These prices seem very good. When renewbles come back in vogue this could do well. Meanwhile underpinned by about 6% recovery at these prices.

[andyadvfn1] 15/9/2023 07:08

SeanyboyI think interest rates need to come down significantly before we see the 150s, I believe it's the main driver.

[keyno] 14/9/2023 15:46

How about when our porcine friends take to the wing? :(

[gbcol] 14/9/2023 13:56

Well once interest rates have peaked that will help (and I don’t think that is far off, may have already happened) but may need to start falling before the discount to NAV is significantly reduced. I’m very exposed to the sector, so it’s very disappointing to see the drop from premiums to NAV we had to the large discounts we currently have. However all my divis have been reinvested and I’ve topped up whenever I can because the income is still decent and capital growth should come in the medium term if not sooner.

[seanyboy] 14/9/2023 13:00

Have had trig on my radar now for 3 years & still to pull the trigger - no pun intended! I like the sector of course but it seems to be doing squiddly well actually worse than that as this is the lowest I have seen it for a while! Can anyone see in what scenario the share price can get above 150p which well beyond current price any views appreciated

[gateside] 31/8/2023 07:23

Hopefully this has seen its lows, and will start heading back to +120p

[davebowler] 11/8/2023 15:10

As we have noted on several occasions over the past few months, despite poor share price returns, the underlying fundamentals of the renewable energy sector remain strong, particularly for those companies benefitting from inflation-linked subsidies and exposure to wholesale power prices. In many cases, these tailwinds have more than offset the adverse impact of rising discount rates on NAVs. While these weigh on returns in the short term, it is difficult to see how such wide share price discounts can be maintained for long, even with the increased politicking that we have seen of late, which Cherry Reynard has commented on here.

Within the sector, some companies have fared better than others and it does not seem like a coincidence that the three trusts trading on the tightest discounts also happen to be the largest by market cap, with Greencoat UK Wind (UKW), Greencoat Renewables (GRP), and the Renewables Infrastructure Group (TRIG) all multitudes larger than the peer group median. This is likely an indication that the main sellers of renewables funds have been the larger wealth managers, who are increasingly obsessed with liquidity. While scale in isolation is certainly not a reliable indicator of success, all three trusts have continued to show continued fundamental stability despite the volatile macro environment.

This week, following the publication of its interim results, I got a chance to sit down with some of the key members of TRIG’s management team. Despite trading on one of the narrowest discounts in the sector, TRIG stands out as a particularly attractive proposition at current prices thanks to the clear, long-term potential of the fund’s assets and the willingness of its managers to embrace the opportunities present in the sector.

The company owns the largest diversified portfolio of renewable energy investments within the UK investment company sector, spread across eight countries and four asset classes. This is in contrast with the majority of the other funds that are either single mandate or specialists in individual assets, exposing them to considerable and often unhedgable risks, which are exacerbated further by the intermittent nature of renewable energy generation. We have seen this play out over the last few years, particularly with regard to generation from wind, with prolonged periods of below average wind speeds causing energy output drop by over 30% for some producers. TRIG certainly was not immune to these challenges, however the overall impact on its portfolio as a whole was limited thanks to its geographic, technological, and revenue diversification.

The diversity within TRIG appears to be an extension of the proactive nature of the management team and its ability to identify opportunities within this fast-moving sector. As technology accelerates and the cost of various infrastructure investments continues to fall, managers who remain stationary, or those unwilling, or unable to take certain risks, get left behind. That is true in any industry but is particularly relevant here given the speed at which renewable production is changing, and the variety of technologies available.

In 2021, the managers requested an increase to the fund’s mandate to invest in development projects – from 15% of the fund to 25% – identifying a potential value add to shareholders. While these projects come with elevated risks, these are mitigated to an extent by the stability of the company’s existing portfolio, particularly its six offshore wind projects, which benefit from protected cash flows, reducing the sensitivity of its equity returns to changes in power price levels. Over the first half of 2023, these investments delivered operational cash flows of £264m, representing three times cover of the £87m cash dividend paid to shareholders (at a yield of over 6%). Outside of paying down portfolio level debt, the bulk of these cashflows were reinvested into construction projects, including the commissioning of four solar projects in Spain, an onshore wind farm in Sweden and the development of two near term battery storage projects in the UK, further highlighting the desire of TRIG’s managers to generate shareholder value through effective diversification.

The company is also able to leverage its scale, and balance sheet to deliver projects that would be beyond the scope of many other funds in the sector, particularly relating to increasing merchant risk. Subsidy-free projects are becoming more common place as the market matures, particularly for solar installations, and TRIG’s ability to be a relative first mover provides considerable advantages, both in terms of the ability to select prime developments, and to negotiate agreeable rates of return that reflect the increased risk (which can be as much as two to four times greater than construction risk). Again, thanks to the structure of the portfolio, the managers can branch out into higher return investments with the knowledge that over 50% of forecast revenues are linked through subsidy support mechanisms providing a natural hedge to increasing return expectations.

The expertise in developing these projects should also not be discounted given the increasing complexity that exists when taking on merchant risk, and the potential opportunities that will arise as long-term project subsides roll off in the coming years will likely be substantial.

One of the key challenges of investing in renewable energy over the years has been to manage the disconnect between the clear, long term, opportunity that exists, and the bottom-up reality of the assets in the sector. We all know that renewables will need to make up the bulk of the world’s energy supply over the next century, and that regulatory tailwinds to drive investment are immense. However, identifying tomorrow’s winners has proved to be no easy task. Investors must navigate a revolving door of technologies, confusing business models, and a patchwork regulatory environment. This remains the case today, even as the industry has begun to mature. The value of funds like TRIG is that they are capable of navigating these complexities, thanks to a wealth of technological expertise, while also having structures in place to manage the downside risks that are unfortunately commonplace given the variable nature of production (such as wind generation mentioned above).

Renewable energy investment is a long game, and as with any investment, preserving capital is key to generating long term, compounding returns. TRIG appears as well equipped as any to achieve this thanks to the level of diversity within its portfolio, and the continued execution by its managers.

[jong] 10/8/2023 07:37

XD Today. 1.795p per share payable on Friday 29 September.

[davebowler] 09/8/2023 08:50

RENEWABLE INFRASTRUCTURE
04 AUG, 2023
Better than bonds: TRIG considers buybacks as surplus cash blows in
Update: Half-year results from Renewables Infrastructure Group show £3.5bn income fund promising to beat gilts and with room to buy back shares that have drifted to a 14% discount.

BY
GAVIN LUMSDEN
The Renewables Infrastructure Group (TRIG) has held out the prospect of share buybacks to tackle its 14% discount as the board and fund manager Infrared Capital work out the best use for its cash flows driven by inflation and power prices.

Half-year results today showed the £3.5bn portfolio of wind and solar power projects generated £264m cash in the six months to June, three times what the 6%-yielder needs to cover its quarterly dividends.

Dividends were covered 1.7 times by net cash flows, up from 1.4 times a year ago, as the investment company continued to prioritise debt reduction, repaying £119m of portfolio-level borrowing in the period.

Both the chairman Richard Morse and fund manager Richard Crawford said the priorities for its surplus cash flow were lowering the £410m drawn down on its £750m credit facility and funding the construction of two battery projects in the UK, solar plants in Spain and an offshore wind farm in Sweden.

‘Beyond this, the investment manager adopts a disciplined approach to further capital outlay, where, together with the board, it also considers share buybacks alongside potential new investments as well as disposals to generate cash for such allocations in seeking the best return for shareholders,’ Morse said.

‘Right policy’
Confirmation that TRIG was on track to hit this year’s dividend target of 7.18p per share, up from 6.84p in 2022, and that buybacks were on the agenda lifted its shares 1% to 115p.

‘This is clearly the right policy in view of the current discount and constraints on capital, albeit evidence of execution will be key,’ said Jefferies analyst Matthew Hose.

TRIG shares have fallen 10% this year in a sector-wide de-rating caused by the sharp rise in interest rates, which has put investment companies under pressure to take steps to improve investor returns.

That discount has cut TRIG’s market value to £2.8bn and left the stock trading on a 13.6% discount to net asset value (NAV) per share of 132.2p at 30 June, double the valuation gap in February when it reported its best-ever annual results.

NAV per share dipped 2.4p or 1.8% over the six-month period as a rise in inflation that added 3.5p to the valuation was more than offset by a rise in discount rates, which knocked off 5.7p, and a fall in power prices which reduced NAV by 3.5p per share.

However, also in the mix was improving or sweating the assets, which added £160m to NAV, equivalent to 6.4p per share. Operations director Chris Sweetman said making older wind turbine blades more aerodynamic had increased their power generation by 5%.

Responding largely to the rises in interest rates and government bond yields, TRIG hiked its weighted average discount rate by 0.7% to 7.9%, although the higher returns it expects in future from its battery projects were a factor in the adjustment too.

The impressive cash generation came despite electricity production of 2,954Gwh coming in 9.3% below budget because of calm weather in the UK and Ireland where onshore wind slumped 21% and 18% below budget.

Not just a bond proxy
TRIG passed its 10th birthday last month. Over the past decade, its shareholders have received a total return of 92.5%, although underlying investment return has been 146.5%, according to Numis Securities data.

Morse said TRIG was demonstrating its resilience through the economic cycle, underpinned by the positive inflation correlation of its revenues and low exposure of its cash flows to rising interest rates.

‘Over the next ten years, more than 50% of forecast revenues are directly linked to inflation through subsidy support mechanisms providing a natural hedge to increasing return expectations,’ he said.

Infrastructure funds’ reputation as ‘bond proxies’ has hurt them this year as investors have perceived the return of 4%-5% yields UK government bonds as more attractive. Crawford told analysts TRIG was making efforts to improve its total return by targeting capital growth through the construction of new assets, co-locating wind with solar parks and re-building or ‘repowering217; older sites.

In his presentation, he compared the 4.5% yield on a 20-year gilt with TRIG’s 7.9% discount rate, which reflects the annual return the fund expects to make on its investments. Whereas the gilt offered a 1.1% real return over the market’s forecast of 3.4% inflation, TRIG’s discount rate implied a 5.2% annual real return over the 2.7% average inflation forecast for Europe over the next two decades.

Liberum analyst Joseph Pepper retained a ‘buy’ on TRIG. He said the NAV decline was in line with its peers, the share price discount was comparatively low and, with the portfolio conservatively managed, he was less concerned by financing costs, adding, ‘we expect it to be among the first in the peer group to raise equity (and fully repay floating rate debt) once equity markets recover.’

[the deacon] 05/8/2023 08:52

Replay of the results presentationhttps://youtu.be/md6HRFIa9Ds

[adamb1978] 04/8/2023 11:22

Yes, thought the results were fine. This whole category of shares will get re-rated by end of year IMO once its clear that inflation is falling rapidly and that interest rates will be falling within a year or so

[tuftymatt] 04/8/2023 09:27

And the dividend remains untouched

We are pleased to reconfirm the 2023 dividend target of 7.18p per share (2022: 6.84p per share).

[petewy] 04/8/2023 08:20

Healthy results

[topvest] 28/6/2023 13:23

Yes, think it will be in the US and UK that things break most quickly. Euro companies always seem to delay the day of reckoning through not marking things to market (e.g. property values). Extend and pretend!
I'm not sure where the sewage crisis came from really...it's nothing new. Having the equivalent of a Tideway Tunnel in other places is simply unaffordable.

[spectoacc] 28/6/2023 12:37

Really interesting - see it's replaced the "Water bills to rise by 40% to combat sewage crisis" as headline from this morning.

The end of ZIRP = things breaking. Only surprise is how long it's taken. LDI, CS, US regional banks, US office sector - none of it been contagious yet, but surely more to come.

Read an interesting article suggesting PE hasn't been raping and pillaging the water sector - at least not recently. But they did in the early years, and backlogs aren't easily caught up.

A lot of big co's with enormous debt (Vodafone, Tobacco etc), but should be OK. Shadow banking sector, PE etc, seems more interesting. Don't think rates need to go any higher from here to see more of it either.

Not sure where it leaves infrastructure, when equity isn't easily raised and assets need constantly adding to to extend duration.

Happy to be long TRIG down here tho - now back to the level the directors bought in at.

[topvest] 28/6/2023 12:02

Very interesting news on Thames Water though and its struggles on financing. I'm not sure the market has yet worked out that infrastructure funding is NOT going to be as readily forthcoming at 5%+ interest rates. Wind farms, solar parks, GP practices, PFI, water companies..all ex-growth..the list goes on!
Of course, that probably makes existing assets more valuable as you won't be able to build them for current valuations. Any thoughts?
Is the Thames Water debacle another crack in the UK financial system? Another LDI type crisis. There will be more. Its 80% geared by the way...too high in a high interest rate environment where Ofwat allows only a very low return on capital. Thames Water has also always been the problem child of the water sector. I used to do a lot of audit work in the water sector...glad I'm no longer involved....lots of cheap debt eventually becomes lots of expensive debt when it needs refinancing.

[topvest] 28/6/2023 11:41

Some recovery in renewables today.

[topvest] 28/6/2023 09:22

Thanks - put a third of my cash in T23, TN24 and TN25 for now. Down 0.15% on it, so not too expensive to lock in to "risk free" 5% annual returns. Better than earning 2-3% from Interactive Investor!

[spectoacc] 28/6/2023 07:19

iii traded them online, then didn't, then said they hadn't been able to for months, then couldn't give me an ETA for a fix. Moved cash, & next day some were back tradeable - had been a problem with their price provider apparently.

So you should find most on iii now, but not all, & has made me wary how quickly I could get out again. I'd phoned at 16.26 to buy some, couldn't, and they advise to phone up 15 minutes before market close to get a trade away. In a market that isn't busy.

I suggested they look at getting a 21st century phone system :) No good if there's eg a flash crash, & you want you money to invest.

"We have protocols to go through, Sir".

[topvest] 28/6/2023 07:01

I use Interactive Investor and Charles Stanley Direct. What do you mean please re. trouble on iii to restore many of them?

[spectoacc] 28/6/2023 05:54

TN25 & T26 are favourites but I've a few - almost 100% of non-ISA/SIPP money.

Had trouble getting iii to restore many of them; Jarvis & AJBell will trade them by phone; but HL seem best, have had no problems at all.

Not sure if the CGT-free nature will survive Labour's first Budget, but for now they're an absolute gift.