Analysts have questioned the 40% discount the market has placed on VH Global Sustainable Energy Opportunities (GSEO ) after the 8%-yielder announced a fully covered dividend despite just over half its portfolio being operational three years after launch.

In annual results last Friday, chair Bernard Bulkin said 2023 had been a year of ‘building value in the portfolio’, with 58% of the renewable assets spread across the UK, Australia, Brazil and US operational over the 12 months to the end of December, with the remainder due in early 2025.

Earnings per share almost doubled to 13.15p from 7.67p, covering total dividends of 5.56p per share by 1.1 times. This made the board comfortable in raising the 2024 payout by 2.9% to 5.68p.

Bulkin said that with 90% of revenues linked to inflation, dividend coverage was expected to lie between 1.1 and 1.2 times this year and rise subsequently.

With dividends included, the £483m portfolio achieved a 14.5% total return with Victory Hill fund managers Richard Lum and Eduardo Monteiro not distracted by the departure of chief executive and co-founder Anthony Catachanas last July, although the shares have tumbled 26% in the past year.

Bulkin was bullish about the year ahead, with interest rate cuts likely to drive a rerating across the alternative investment company sector. The board announced a £10m share buyback programme last September to tackle the discount. With the gap to NAV widending from a one-year average of 25%, reducing the company’s market value to £277m, the buybacks have been doubled to £20m.

‘We are witnessing early signs that financial markets are entering a new phase with inflation cooling and an easing interest rate outlook. These macroeconomic green shoots, coupled with the underlying strengths of the company, lead the board to look forward to the year ahead with confidence,’ he said.

Excluding dividends, the portfolio increased by 7.6% to NAV of 116.46p per share, driven by a 1.5% reduction in the discount valuation rate, reflecting a fall in long-term government bond yields, notably the 20-year US Treasury yield which fell from 4.9% to 4.19% at the end of the year.

Discount rates for operational assets at year-end were 6.91% in the US, 7.74% in Australia, 9.54% for the Brazilian hydro facility and 9.67% for the Brazilian solar assets. The UK asset is in construction and therefore currently held at cost.

Jefferies analyst Fiona Huang said that US bond yield movements in the first quarter would unwind some of that gain, but pointed to other uplifts to valuation from a tax incentive renewal on its Brazilian hydropower asset and operational improvements in its US terminal storage assets as demonstrating Victory Hill’s prudent approach.

Huang reiterated a ‘buy’ recommendation, highlighting the healthy dividend guidance, while Peel Hunt’s Markuz Jaffe highlighted the share price weakness, despite ‘the board having been active with share buybacks, paying a fully covered and growing dividend and having a pathway for increasing cashflow generation over the coming year as further assets become operational.’

Colette Ord, analyst at the trust’s broker Deutsche Numis, said GSEO had the lowest leverage in its sector, with borrowing representing 1.9% of NAV, and no debt at fund level, meaning high interest rates have had no discernible impact on performance, while cash represented 5.7% of assets.