The Renewables Infrastru... Share Discussion Threads

[jong] 10/8/2023 08:37

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

[davebowler] 09/8/2023 09:50

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 09:52

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

[adamb1978] 04/8/2023 12:22

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 10:27

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 09:20

Healthy results

[topvest] 28/6/2023 14:23

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 13:37

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 13:02

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 12:41

Some recovery in renewables today.

[topvest] 28/6/2023 10:22

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 08:19

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 08:01

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 06:54

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.

[joey52] 27/6/2023 22:18

Topvest, I posted this on the fixed income board yesterday.
Might be of use, rates improved today

hxxps://www.yieldgimp.com/gilt-yields

[topvest] 27/6/2023 21:03

Thanks very much SpectoAcc - yes, just taken a look on UK short gilts and, unsurprisingly, you now get 5%. Will give that a whirl tomorrow, to see how easy it is to trade. I've not purchased bonds since 2009 or so...so I'm a bit rusty! TN24 etc. looks quite good. It should earn me 2% more on my cash pile for no risk.

[spectoacc] 27/6/2023 20:22

Short-dated Gilts - CGT-free, can sell again if need the cash to invest (& likely for more than you paid, if it's the equity crash).

You might enjoy this @Topvest - agree re crypto/US:

[topvest] 27/6/2023 19:19

I'm not sure its that easy to get 5% interest on cash - I'm getting about 3%, but I'm holding cash to reinvest. You can get c4% in a reputable bank or NS&I 1 year bond. Sure, you can lock it away for 5% (often with a non-blue chip bank) but that's no use if we have a full on bear market / we have bank runs. The opportunity to invest at or near the bottom will be missed. You get 6.5% here and its growing and tax free in an ISA. You just have to stomach the volatility.
Personally, I'm happy to hold this one for years.
Still holding high cash balances though until the US bubbles burst (crypto and tech). That's always been my big buy signal on buying riskier shares for what its worth. I really cannot believe the Americans - bitcoin back to 30k and they are bidding Nvidia to a P/E of 200. Speculation gone mad. It can't end well and the UK market won't bottom until the US snaps.

[cc2014] 27/6/2023 07:28

Indeed. Where are the buyers coming from?

With QT that's sellers not buyers
PI's selling to pay the mortgage
PI's reducing pension payments to pay the mortage
PI's now getting 5% on cash so why bother with the stock market
Likewise funds/institutions buying gilts.

Stocks may be may not be cheap depending on your view but it's hard to make money fighting the money flow.

[spectoacc] 26/6/2023 21:24

@topvest - noted, and largely agree, but - where's the bottom? I thought it was 77p on SUPR the other week, and above that on GCP. Impossible really to call the bottom, but eg HICL I paid £1.34 for just days ago, today I got more below £1.20.

Wish I'd waited.

40% Gilts/gold because I think things have at least the potential to get a whole lot worse.

Or put another way - falls never stop at FV, and whilst a lot looks cheap, is it going to get cheaper? Where are the buyers going to come from?

[makinbuks] 26/6/2023 18:56

Nice to see director buys but don't think it will help much when the issue is future interest rate expectations.

[topvest] 26/6/2023 17:03

10 year rates topped at 4.5% last week and are now back to 4.3%. 2 year rates are 5.1%. 1 year is about 5.4%. Anyway you look at this, its good value on a yield basis given the very high quality of the portfolio! Panic selling no doubt.

[topvest] 26/6/2023 16:48

OK, quick sense check. You get a 6-7% yield on infrastructure (+ likely to be growing). Unilever and Diageo offer 3.5% and 2.5% yield growing at 5% max. You can get say 4% easily on cash, more if you lock it away. Renewables are looking attractive in my view. Obviously Unilever and Diageo are great quality, but you would want a starting yield at about 4% to be attractive if they are only growing their dividends slowly. It's a buyers market again in some places. Everyone is buying US mega tech - yield on offer close to zero. It's a crazy world if you look on investments as a dividend investor!

[spectoacc] 26/6/2023 16:48

My fear is if 1990's re-run is only just starting, & how much pain is still to be taken.

Other fear is that we're getting these falls without the US crash, without FTSE100 doing much at all. What will things look like if the S&P falls 40%?

Bought some of the IMO slightly safer REITs on their big falls on Fri (LXI, SHED, more SUPR, EBOX) & picked up some HICL, GCP, SEIT today. Sadly the latter three all averages, particularly the last two, and well out of the money.

But can never resist "cheap", even when likely getting cheaper.

I wasn't for a property crash, but seems unavoidable now. Prices are set at the margins, and if eg 5% of people have to sell up, that's a lot of property that won't find buyers at current prices.

(I'm also for interest rates going nowhere near 6.5%, & biggest holdings long-dated Gilts, short-dated Gilts, gold).