Schroders Greencoat co-founder Laurence Fumagalli has stepped down from the flagship £3.5bn UK Wind (UKW ) fund that he launched with Stepehen Lilley in 2013. The firm’s head of private markets Matt Ridley took over at the beginning of the week.

Fumagalli (pictured) will remain part of the senior management team at Greencoat, stepping back from UKW, the first London-listed renewable infrastructure fund, surpassed the £1bn mark in dividends paid to shareholders, annual results showed.

He co-founded the firm in 2009 alongside Lilley, Bertrand Gautier and Richard Nourse and Schroders bought a 75% stake in the business three years ago.

The UKW portfolio of 49 operating wind farms saw a strong year of energy generation, producing enough electricity to meet about 1.5% of the UK’s demand, or 2,007 megawatts in the year to the end of December, despite being 13% below budget as wind levels fell.

This followed investment of £821m into four wind farms, Dalquhandy, London Array, South Kyle and an extension to Kype Muir, swelling the portfolio capacity above 2 gigawatts. These added £174.2m to net asset value.

Robust returns

Cash generation totalled £406m, covering the 8.76p dividend 2.1 times, without taking debt costs into account, giving the board some room to lift the 2024 target by 14.2% to 10p, well ahead of 5.2% retail prices index benchmark at year end.

Net asset value softened 1.8% to 164p per share, knocked by an increase in the discount valuation rate applied to future cashflows in line with interest rates, as well as falling power prices and inflation.

Shareholder returns totalled 5.4% as the shares traded at an average 10.5% discount over the year, just over the 10% threshold that means a continuation will be held at the annual general meeting on 24 April. The board has spent £20m of a £100m buyback budget announced late last year to purchase its cheap shares, boosting NAV a little in doing so and hoping to narrow the valuation gap.   

Chair Lucinda Riches said the fund was generating a 10% total underlying annual return net of all costs in the year ahead, which she was confident would continue.

‘Given the nature of UKW’s business, we believe that this return compares well with the 10-year gilt rate which was 4.1% immediately prior to the date of this report.’ She added that the 7.4%-yielder’s ability to self-fund means it does not rely on issuing shares, which the wide discount currently prevents as it would dilute shareholders’ stakes.

Fumagalli and Lilley said the portfolio was robust in the face of volatile power prices, noting that there was significant upside from power prices, extending the life and optimising the performance of assets, creating new revenue streams and benefiting from interest rate cuts.

UKW applies a 10%-20% discount to power price assumptions in all years to reflect the fact that wind generation typically captures a lower price than the base load power price. In 2023, the portfolio captured an average price of £89.03 megawatts per hour versus, 6% below the average next day index price of £94.47/MWh, but significantly higher than the level forecast in the NAV.

The managers added that the dividend remains covered all the way down to £10/MWh, with revenues a mix of fixed and merchant.

JPMorgan’s top pick

JPMorgan Cazenove analyst Christopher Brown said the fund was his top pick in the renewables peer group given its straightforward model that is unchanged since launch, its size, transparency of the crucial power price assumptions and its focus on capital allocation including its recently increased dividend and buybacks.

Its biggest current weakness is its largely unfixed power price exposure and forward power prices over the next two years have fallen 24% year-on-year, he said. While the dividend is covered all the way down to very low prices, it would suffer the most in the near term if prices continue to fall.

‘We see The Renewables Infrastructure Group (TRIG ) as UKW’s closest peer, and also a high quality company with good transparency, but we note that UKW’s steady state returns remains higher than TRIG’s,’ Brown said.

Under Fumagalli’s tenure, the shares have gained 163%, while net asset value advanced 200%.