Thursday 18 July

Downing Strategic Micro-Cap Investment Trust PLC special div payment date
Invesco Global Equity Income Trust PLC ex-dividend payment date
JPMorgan China Growth & Income PLC ex-dividend payment date
Montanaro UK Smaller Cos Investment Trust PLC ex-dividend payment date
Schroder Oriental Income Fund Ltd ex-dividend payment date
TwentyFour Income Fund Ltd ex-dividend payment date

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Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by SDCL Energy Efficiency Income. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

• SDCL Energy Efficiency Income’s (SEIT) annual results to 31/03/2024 show a NAV total return of -4.7%. SEIT paid total dividends of 6.24p (2023: 6.0p) and the NAV decreased to 90.5p (2023:101.5p).
• At the current share price, SEIT yields c. 9.4%. Dividends were covered 1.1x by cash and based on current projections the board announced dividend guidance for the year ending 31/03/25 of 6.32p and reaffirmed the goal of a progressive dividend thereafter.
• The main driver of the NAV decline was a 90bp increase in the weighted average discount rate (WADR) to 9.4%, with this increase taken in the first half of the year to 30/09/2024. Of the 11.7p decrease in NAV per share, 10.8p was due to movements in discount rates.
• During the year, £161m of investment into mainly existing assets was made, with these expected to be value accretive.
• Cash inflow from investments increased 8% to £92m.
• Post-year end, UU Solar was sold for c. £90m, a 4.5% premium to its valuation at 30/09/2023, which, along with external valuations of some assets, helps to provide ‘proof’ of c. one third of the portfolio, the valuation policy and hence the NAV. The proceeds were used to reduce short-term debt.
• Adjusting for this sale, and on a consolidated basis, considering debt both at the trust level and debt within individual investments, SEIT is c. 32% geared on an LTV basis (or c. 43% as a percentage of net asset value).
• SEIT’s portfolio’s Scope 4 emissions were 972k tCO2. Scope 4 emissions in this context are defined as emissions that have been avoided through greater efficiency.
• SEIT currently trades at a c. 26% discount to net asset value (12 month average 31%).
• Tony Roper, chair, said “As the world seeks to address the practical challenges of the energy transition and efforts to decarbonise, energy markets and their supply chains face scarcities and price volatility. In this context, investing in more efficient supply, demand and distribution of energy, which is SEEIT’s focus, becomes increasingly important and valuable. We believe that SEEIT remains well positioned to benefit from this opportunity.”

Kepler View

The increase in the weighted average discount rate (WADR) identified above as the single biggest factor in the overall outcome for SEIT to 31/03/2024 is, it’s important to note, principally a market factor rather than an increase driven by a change in the risk profile or mix of SEIT’s portfolio. And, it represents an unrealised loss. It’s interesting then that this increase, and the consequent decrease in NAV, was taken in the first half of the year, with the second half being flat, and here we are nearly nine months later at the time of writing with actual rate cuts from the ECB, Switzerland, and Canada hinting that the same might be over the horizon for the US and the UK. It seems unlikely that there will be a simple one for one relationship between rate cuts and discount rates, or the discount to net asset value for that matter, but if SEIT and its peers’ wide discounts are principally explained by higher interest rates, then one can reasonably see the reverse as a catalyst for the discount to narrow in the medium term.

Meanwhile, at an operational level, the trust has continued to make progress, seeing earnings growth and making value enhancing investments in its existing portfolio. And if we step back briefly from the specifics of SEIT, our regular readers will know that there is an inexorable trend among real estate investment trusts (REITs) in the UK and elsewhere emphasizing the performance of buildings, notably relating to energy costs. SEIT’s portfolio isn’t, of course, just about buildings, but the fundamental principle of energy efficiency is the same. The annual Scope 4 emissions noted in the summary above are approximately equivalent to average emissions from over 850,000 cars and while on the one hand an investor with specific ESG goals can add this to their tally, the figure is also one way of measuring real world financial savings for the businesses and public bodies that are SEIT’s counterparties.

SEIT isn’t of course alone in trading on a very wide discount and the reasons behind that have been well-explored over the course of the last two years, but briefly boil down to higher interest rates leading investors to take a very cautious view on valuations on private assets, particularly where risk-free rates are an explicit input into the valuation, combined with more attractive valuations for traditional government and corporate bonds as a result of those higher rates.

The SEIT team notes that the underlying portfolio return, if it was left to run off to maturity, would be c. 9.4% p.a. if current gearing just ran off on schedule and 11% levered if gearing was maintained at current levels. Factoring in the discount, the share price return could, if the price converged with NAV, and taking off ongoing charges of c. 1.1%, could result in returns of 13-14% p.a.. Clearly this relies on all investments performing as forecasted, but is a good indication of what the discount could actually mean for returns.

SEIT sold one of its largest assets post-year end for a premium to its last valuation, which is the kind of proof of valuation that investors across SEIT’s peer group have been asking to see for the last two years. This, combined with the point we are in the rate cycle referred to above, means that pieces are beginning to fall into place for first, a stabilisation in asset value and second an improvement in SEIT’s c. 26% discount, which means that its covered dividend is equivalent to a c. 9.4% yield measured at the share price. As the chair notes, the underlying trends behind SEIT are only getting stronger, and this discount and yield seem like a very good point for a long-term investor to initiate a position.

Dividends

In line with previous guidance, in June 2024 the Company announced its fourth interim dividend for the year ended 31 March 2024 of 1.56 pence per share. This provided an aggregate dividend of 6.24 pence per share declared for the year ended 31 March 2024, which was fully covered 1.1 times by cash flow from the portfolio.

Based on our assessment of current cash flow projections, the Company is announcing new dividend guidance of 6.32 pence per share for the year to 31 March 2025, an increase of c.1%, and as before is targeting progressive dividend growth thereafter. The dividend guidance balances growing the dividend with the ability to generate higher levels of surplus cash available for repayment of debt and reinvestment in investment opportunities.

27/06/24

I’ve bought for the portfolio 14205 shares in SDCL Energy Efficiency for 9k.

Yielding 10% and trading at a discount of 31.2% as a replacement share for LBOW.

I’ve looked at SEQI after today’s update, although it contains no bad news, I’ve decided to sell for a total loss of £3.71p

The Snowball is overweight at NESF, where the current ‘profit’ is £883.00, including earned dividends.

I’ve sold 2713 of shares for £2,255.00 bringing the position back to 10k.

current cash for re-investment £5,389.22

I’ve bought for the Snowball 17373 shares in Triple Point Social Housing SOHO for 10k

Trading at a discount of 55.3% to NAV and yielding 9.5%

The current blog profit on SOHO is £3,420.67

I’ve sold the Snowball shares for a loss including dividends earned and capital returned and re-invested for a loss of £3,917.00.

I’ve been very slow in selling and the loss as only grown, hopefully if the funds are re-invested in a Trust trading at a big discount and paying a dividend the loss can be re-covered.

There is a new rule.

Rule one.

Buy Investment Trusts that pay a ‘secure’ dividend to buy more Investment Trusts that pay a ‘secure’ dividend.

Rule two.

Any Trust that drasitically changes it dividend policy must be sold even at a loss.

Rule three.

Obey rule one and two.

1 top stock to consider for a diversified passive income portfolio

Story by Kevin Godbold

The Motley Fool

Income from passive investing sounds attractive.

Little effort. No worries. Just sitting back and waiting for shareholder dividends to flood in.

That’s one way of investing. But it’s active rather than passive

Checking in every so often

For those with a life, a better way may be to take the laid-back approach.

After all, billionaire investor Warren Buffett is known for holding stocks for long periods — think decades. So he’s proved there are businesses that can be buy-and-forget investments.

Having said that, Buffett is known for reading company annual reports. But I bet he doesn’t watch stock price movements, or concern himself with every piece of trifling news. Has he even got his own computer ? I’m not sure.

Reading annual reports — or even just skimming them — is a good idea. If we don’t do that, what’s the point of being a do-it-yourself investor? We might as well just bung money in low-cost index tracker funds and ride off into the sunset.

However, a light-touch approach to owning shares can be productive because a long-term holding period often drives the best returns. Being too active can lead to doing silly things, such as buying and selling shares too much because of emotional over-reactions to news flow.

But passive investing needs a couple of things, I reckon.

Two important steps to take

The first is a careful approach to stock selection, and thorough initial research. The second is diversification between several stocks, so all the invested money isn’t concentrated too much.

With a diversified long-term portfolio in mind, I’d consider stocks such as Renewables Infrastructure (LSE: TRIG).

The investment firm has a portfolio of onshore & offshore wind, solar, and battery storage projects across the UK, Ireland, France, Germany, Spain, and Sweden. 

In short, green energy, so why has the share price been so weak lately? In today’s world, the sector seems like a no-brainer for investment, at least at first glance.

Those risks are real and may become an ongoing headwind for the company’s growth in net asset value and cash flow. Many stocks in the sector have been marked lower by the market over the past few months.

A strong record

However, if Renewables Infrastructure can keep up decent cash flow, there’s a good chance dividend payments will continue. After all, the multi-year record of shareholder payments is excellent.

The firm has raised the dividend every year since at least 2018, and didn’t even miss a beat through the pandemic.

With the share price near 100p, the forward-looking yield for 2025 is just over a whopping 7.6%.

Over the long haul, I reckon the company has a bright future, so I’d be keen to research further with a view to adding some of the shares to a diversified portfolio of stocks