Renewables TRIG

A 10-year anniversary: the TRIGger for a closer look at The Renewables Infrastructure Group
Anyone out there know what they will be doing in 10 years’ time? Well, Doceo Insights has a good idea of what it will be writing about in March 2034…

By
Frank Buhagiar

Can you remember what you were you doing on Monday 29 July 2013? Lying on a beach somewhere hot perhaps (at the time 2013 was the ninth warmest summer on record in the UK)? Chances are the then Team TRIG (The Renewables Infrastructure Group) will have no trouble remembering what they got up to on that particular summer’s day – celebrating the company’s IPO (Initial Public Offering) on the London Stock Exchange and the successful raising of £300 million. A 10-year anniversary? An opportunity to see how far TRIG has come since those heady days of summer 2013 that just can’t be ignored…

Rewind
Back to 2013, what did TRIG look like and what did it do with the funds raised at IPO? A delve back into the archives unearths the company’s 2013 Annual Report which states: “IPO proceeds used to acquire an initial portfolio of 18 high quality wind and solar assets – diversified by technology, weather systems, power markets and regulatory regimes – which is performing in line with expectations”. By November 2013, the portfolio had expanded to 20 projects: “In accordance with TRIG’s strategy set out at the IPO, initial portfolio expanded with acquisition of two solar parks in November to bring portfolio to 20 investments at 31 December 2013 (14 onshore wind and 6 solar PV assets in the UK, Ireland and France with total generating capacity of 288.4MW)…” As for a portfolio valuation, the Report goes on to say: “Directors’ Valuation of the portfolio at 31 December 2013 of £300.6 million (compared with £279.4 million as at 29 July 2013)…”

20 wind and solar assets; total generating capacity of 288.4MW; £300 million portfolio valuation. We have a starting point.

Fast forward
To today, specifically to 28 February 2024 when TRIG announced its full-year results for the year ended 31 December 2023. Helpfully, Chair Richard Morse used his statement to reflect on how far the company has come since its IPO 10 years ago: “The past year marks a decade since TRIG’s IPO in 2013. Our diversified portfolio now has generation capacity of 2.8GW, ten times that at IPO, and can produce enough clean energy to power 1.9m homes and displace 2.3m tonnes of CO2 per annum. The portfolio’s strong, inflation-linked cash flows have supported healthy dividend coverage and enabled TRIG to fund organically the delivery of 300MW of new generation capacity since IPO. This year, robust cash flows were achieved despite the strained macroeconomic environment as interest rates rose to the highest levels during the Company’s history. This macroeconomic backdrop has negatively impacted the share prices of renewables investment companies, including TRIG.”

And the portfolio’s valuation has increased ten-fold too: “The Company’s Net Asset Value as at 31 December 2023 was 127.7p per share (31 December 2022: 134.6p per share) and the Company’s Portfolio Valuation was £3,509m.”

TRIG has come a long way in 10 years.

Fast forward x2
Question is where will TRIG be in 10 years’ time in 2033? Sadly, no crystal ball to hand. Next best thing though, a host of broker comments on the back of the company’s latest results to consult. While the brokers do not attempt to predict what TRIG will look like in 10 years’ time, they do at least provide some useful insights that can help inform a shorter-term outlook for the company.

First a quick overview of the latest numbers courtesy of Winterflood: “Annual results for year to 31 December 2023. NAV per share -5.1% (-6.9p) to 127.7p, driven by lower power price forecasts and higher discount rates. Power prices trended down during 2023 following reductions in gas prices. Since the balance sheet date, forwards for 2024-2026 have further reduced by c.20%. Over a five-year horizon, a 10% reduction in power prices would reduce the fund’s NAV by 2.2p. The weighted average discount rate increased over the year to 8.1% (31 December 2022: 7.2%)…Pro forma portfolio EBITDA was £610m over 2023 (-9.9% YoY) reflecting lower power prices and below budget generation. Generation 6% below budget at 5,986GWh, with some impact from grid downtime in excess of budget allowances, and site-specific factors including repair or enhancement works to improve the operational resilience of generation equipment and electrical infrastructure.”

Winterflood goes on to point out that “TRIG is actively progressing with several further divestment opportunities, with the primary objective of reducing the level of the outstanding RCF…Preliminary offers have been consistent with or above the portfolio valuation. Battery storage is an area of strategic focus, highlighted by recent acquisition of Fig Power, a UK developer with a focus on battery storage systems. The four Spanish Cadiz solar projects reached operations in Q1 2023. Construction has commenced for the Ryton battery storage project in the UK, and development activities continue to progress for the Drakelow battery storage project in the UK and the repowering of five onshore wind projects across France and Northern Ireland.”

No resting on laurels for TRIG after 10 years, it seems – lots still going on at the renewbie.

As for other brokers, below are comments from five other houses:

Liberum is positive: “TRIG’s results were in line with expectations, with NAV performance broadly in line with the peer group during 2023. The sector has been significantly impacted by rising interest rates and lower near-term power prices, although the longer-term outlook has remained fairly stable. The result has been a material de-rating in share prices during 2023, with the sector generating an average TSR of c.-22% and discounts now averaging in excess of 30%. For ratings to improve, interest rates need to start to rollover and the supply/demand imbalance in the market needs to be addressed…Of the 22 trusts in the renewables sector, TRIG are one of the best placed to re-rate in 2024, in our view. The scale, conservative balance sheet, diversification and strong dividend cover mean it is well-placed to survive the current market volatility. We view the 20% discount and 7.3% dividend yield as an attractive entry point for a company with a high degree of inflation linkage and strong track record.”

So too is, Investec: “TRIG currently trades on a material discount to NAV…However, we believe that the market is awaiting confirmation of disposals and for TRIG being closer to a position to undertake share buybacks if the share price continues to remain suppressed. We reiterate our Buy recommendation.”

And Numis: “We view TRIG’s discount of 20% to the latest NAV as excessive given its robust position and scope to continue to deliver attractive levels of capital growth from its asset base and prospective yield of 7.5% as attractive particularly if the fund is able to report some positive news on disposals and reduce the RCF drawings, thereby improving its optionality to react to current markets.”

Jefferies is a holder: “The results are relatively uneventful, with the disposal activity expected during 2024 likely to be much more impactful, particularly given the fund’s greater capital allocation flexibility once a material reduction in the RCF drawings has been achieved.”

While JPMorgan is staying neutral: “…given the size and diversification of the portfolio, and class leading transparency, we remain comfortable with our Neutral recommendation.”

Three positives; two holds/neutrals – on balance a thumbs up for TRIG from the broking community. And a potential trigger for a share price recovery also identified – any positive news on disposal activity that may be forthcoming.

Final word
On TRIG’s outlook goes to the Chair: “…the secular themes of decarbonisation and energy security continue to give us confidence in our strategy and outlook. The deployment and operational performance of renewables assets remains a high priority for governments across Europe. TRIG is well positioned to be at the forefront of the energy transition and our Managers will continue to look for ways to advance our 1GW development pipeline of potential generation and storage capacity, through selective investment to progress TRIG’s strategic priorities and improve shareholder returns. Our balanced portfolio of wind, solar and battery storage projects continue to perform well, deliver inflation-correlated returns, and generate strong operational cash flows with low sensitivity to interest rate movements. By taking a disciplined approach to capital allocation, and with two leading Managers steeped in investment expertise and operational excellence, TRIG is well positioned to build on our strong decade-long track record.”

1GW development pipeline – now that should keep TRIG busy for the next 10 years or so. Chair expecting more of the same then.

A 10-year prediction
Of course, time will tell what the next decade has in store for TRIG. But here’s a 10-yr prediction we can make – chances are that, with a fair wind, sound execution and a wee bit of luck, the title of a Doceo Insights article around March 2034 (specific date to be confirmed) will be something along the lines of: A 20-yr anniversary, the TRIGger for a closer look at The Renewables Infrastructure Group…