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TRIG breezes into Germany as UK market slows

12 August 2019

The Renewables Infrastructure Group has made its first investment in Germany, as part of continued diversification, which helped produce strong returns in the first half.

Wind and solar power fund the Renewables Infrastructure Group (TRIG) has made its first investment in Germany as the UK renewables market offers little in the way of returns.

TRIG bought into the Gode Wind 1 offshore wind farm in Germany in April, which now accounts for 8% of the trust’s portfolio.

Germany represents the second largest offshore wind market in the world, with sites concentrated in the German North and Baltic seas.

This market is expected to grow more than five times by 2035 and is still relatively small compared to the German onshore sector.

TRIG also bought a wind farm in Sweden in February and three onshore farms in France during the six months to the end of June. New commitments totalled £417 million in the first half, with £301 million of that amount invested.

The investments were part funded by the proceeds from an oversubscribed share offer in March that raised £302 million.

The £1.9 billion trust comprised of 71 investments at the end of June, including 42 wind and 28 solar projects, as well as one battery storage project.

The assets in the portfolio generated 1,429GWh of electricity, two-fifths higher than for the same period in 2018, though output was still 3% below target.

‘The weather – the wind - in the UK wasn’t actually so good for us [in the first half] but we were able to make up ground with our European assets and our solar assets which gave us a much more resilient result,’ said Richard Crawford, director at TRIG’s investment manager InfraRed Capital Partners.

‘And these diversification benefits will continue to come through with the acquisitions we made during the first half of the year.’

While the UK was still the trust’s biggest regional weighting, making up of more than half of the portfolio, Crawford said Europe offered more opportunity in terms of onshore projects.   

‘The UK is doing relatively little development now and the development that is happening is offshore,’ he said.

‘The UK is still an important market for us but if you take the UK plus Europe you have a much richer, more diverse opportunity set.’

TRIG continues to be one of the strongest performers in the renewable infrastructure space, with a net asset value (NAV) total return of 9% and a shareholder return of 17% in the first half, versus 13% from the FTSE All Share index.

Since the trust’s launch in 2013, it has produced an annual shareholder return of 10%, compared to 7% from the benchmark.

Alongside new investments, first-half performance was driven partly by extending the life of the majority of its wind farm assets, following a review by the trust’s operations manager, Renewable Energy Systems (RES), which added £37 million to the portfolio value.

Another driver of outperformance was a fall in discount rates from 7.6% to 7.5% at the end of June. These are used to calculate present value of the trust’s future cash flows, or its NAV. So the NAV uplift was partly a result of the discount rate coming down, increasing the value of the investments by £29 million.

Full valuation

Shares in the trust trade on a premium of 9%, which Numis analyst Ewan Lovett-Turner said was ‘full given the changes to long-term model assumptions that have already been reflected, combined with the flagged future increase in power price exposure as the portfolio expands into subsidy free assets’.

Stifel analyst Iain Scouller agreed, arguing the shares should trade no higher than a single digit premium, in common with the rest of its sector, implying a fair value of between 120-125p, versus the current price of 127p.

‘TRIG is acquisitive and as we have seen in the past year, an equity issue is never too far away, with these in the past done much closer to NAV, than the current share price,’ he said. ‘Taking into account these points we maintain a "negative" recommendation.’ 

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