wind turbines© Provided by The Telegraph
Rising interest rates and volatile power prices have hurt clean energy funds but annual results from The Renewables Infrastructure Group yesterday demonstrate their sell-off has gone too far and the shares look attractive.
Managed by InfraRed Capital Partners, TRIG’s generating capacity of over 2.8 gigawatts (GW) can power 1.9 million homes and avoid 2.3 million tonnes of carbon emissions a year. This makes it appealing for investors worried about climate change, although being green hasn’t been easy in the past two years.
TRIG’s market value has fallen to £2.5bn as the shares have tumbled to 101.6p from a peak of 145p in September 2022 when energy prices soared after Russia’s invasion of Ukraine.
At its height TRIG stood at a 9pc premium over net asset value (NAV) but the shares have de-rated to a 20pc below NAV of 127.7p as investors have turned to UK government bonds, or gilts, for reliable income.
Buy this renewable fund’s clean and well-covered 7pc dividend
InfraRed’s Richard Crawford and Minesh Shah and TRIG’s operation managers at Renewable Energy Systems (RES) had to work hard to deal with rising finance costs, technical challenges and lower-than-expected wind generation.
Yet despite the difficulties, which knocked 6.9p off NAV per share and saw earnings drop £67m, or 10pc, to £610m, TRIG’s quarterly dividends rose 5pc to 7.18p per share, comfortably covered 1.6 times by revenues.
TRIG lifted this year’s dividend target by 4pc – the rate of inflation it sees across its markets – to 7.47p per share. That puts the shares on a 7.4pc yield, which is good against long-term gilt yields of 4.6pc but in line with its 11 pee
Power prices are expected to fall as Europe ramps up gas storage in response to the threat from Russia and weak economic growth reduces demand, so it was reassuring to see over half of TRIG’s forecast revenues for the next 10 years are linked to inflation.
There was good news on borrowing, with TRIG’s expensive, floating rate overdraft set to shrink from £364m to £150m this year as the managers sell assets to generate cash. Encouragingly, the preliminary offers TRIG has received are either at or above their latest valuation, which suggests the current discount is too wide.
TRIG isn’t just an income fund. It invests for growth and this month bought battery storage developer Fig Power for £20m giving it a 400MW pipeline of projects to either build or sell on.
Encouragingly, TRIG says it can fund its entire 1GW development pipeline from cash without raising money from shareholders.
There was disappointing news with Crawford, the lead fund manager since flotation in 2013, announcing his retirement. Shah, his deputy for the past four years, will take charge in July. Peel Hunt analyst Markuz Jaffe said his departure was a ‘shame’ but took comfort in the big team behind Shah.
Normally a change in fund manager would have Questor hold off making a “buy” recommendation, but we are reassured by Liberum’s Alex O’Hanlon saying TRIG’s strong balance sheet, diverse portfolio and dividend cover mean it is “one of the best-placed” renewable funds to re-rate this year, while Numis’ Colette Ord described the discount as “excessive”.
Questor says: buy
Ticker: TRIG
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