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Renewable Infrastructure rides high on green income demand

19 February 2019

Renewable Infrastructure Group plans first capital raising in two years as £1.4 billion alternative income fund takes advantage of positive sentiment for its 5.5% yield and contribution to a more sustainable world.

Renewable Infrastructure Group (TRIG) is planning its first capital raising in two years as the £1.4 billion alternative income fund seeks to take advantage of positive investor sentiment for its high yield and contribution to a more sustainable world.

The Guernsey-based investment company, which generates quarterly dividends and a 5.5% yield from selling carbon-free wind and solar power, is in advanced talks to buy over £250 million of wind farms in France, the Nordics and the UK.

As a result next month it will launch an open offer for existing shareholders and a placing and offer for new investors to subscribe for new shares at a level that could be lower than their current price. 

Richard Crawford, director at TRIG’s fund manager Infrared Capital Partners, said the five-year-old company wanted to tap investor demand for what was proving to be a defensive and sustainable asset class.

Last year TRIG increased electricity production by 14% to 2,011GWh, enough to provide clean power for the equivalent of 650,000 homes or 0.6% of the total electricity consumed in the UK, it said.

‘We are pleased to report another year with good asset performance and increases in the scale and diversification of the portfolio. With a strong pipeline of potential acquisitions, we have today announced that we are planning the launch of a fresh share issuance programme in the coming weeks,’ Crawford said.

The fund raise comes at a buoyant time for the shares which in the past 12 months have soared 20.5% to 117.6p. This has taken the stock from close to net asset value (NAV) last February, when the valuation was depressed by the political shockwaves hitting social infrastructure funds after the collapse of contractor Carillion, to today's 8% premium to the 108.9p NAV per share just declared for the end of December.

This re-rating follows a strong year of trading for the portfolio of 62 wind and solar parks. Including dividends TRIG achieved a total underlying return of 11.6% on net assets last year, driven by rising power prices and higher bids for renewable assets.

In contrast to the slump in stock markets at the end of the year, TRG’s valuation grew 2.5% in the fourth quarter, and 3.5% in the second half, with Brexit dismissed as a source of concern for the company.

‘The UK’s ongoing negotiations to leave the European Union do not appear to be having a material impact on the renewables sector, with the UK government expected to continue with policies and initiatives to help reach carbon emissions targets enshrined in domestic legislation,’ TRIG stated.

The company also downplayed the risk of a future Labour government. Although the Opposition party has promised to hike taxes and nationalise power companies, TRIG was reassured that ‘all the main parties remain supportive of renewables generation’.

TRIG is considering following rival Greencoat UK Wind (UKW) in extending the estimated life of its assets from a current average of 27 years to 29-30 years. This would reflect technical improvements in their equipment and the fact that some local authorities have extended planning consents or no longer set time limits on renewable power generators.

If adopted the move could add a further 2-3p to TRIG’s NAV per share. Details will be included in the updated valuation to be published in the share prospectus next month.

Dividends rose to 6.5p per share from 6.4p last year and were covered 1.25 times by cash. This year TRIG is targeting dividends of 6.64p, a 2.2% increase that will be ahead of the current 1.8% rate of inflation despite the board formally breaking the link of pay-outs to the cost of living in 2017.

Last year's large increase in energy production was due to four newly-built wind farms coming on stream but was 3.7% below TRIG's budget after wind speeds fell during the UK's summer heatwave. Wind accounts for 83% of the portfolio.

Investment company news brought to you by Citywire Financial Publishers Limited.


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