Shares in Aquila European Renewables (AERS ) have jumped nearly 5% after the £409m infrastructure portfolio launched a €20m (£17.9m) share buyback, the first in its sector to do so after last year’s de-rating in response to rising interest rates.

The 3.5p leap to 80.5p came after the investment trust’s board said it would use surplus liquidity and operating cash flows to buy back up to 5.5% of its shares in an attempt to narrow their wide 23% discount to net asset value (NAV), which it said did not reflect the ‘inherent value’ in the portfolio. 

Directors of the board and fund managers at Aquila Capital will also buy shares to boost demand and further their alignment with shareholders. The euro share class (AERI) rose 3.4% to 92 cents.

The buybacks, which will use the trust’s annual facility to repurchase up to 15% of its shares, would enhance NAV, which grew 1.6% in the last quarter, and dividend cover, Aquila said.

There was further good news on the quarterly dividend as the company lifted its 2023 payout target to 5.51 cents a share, the same increase it made last year. This puts the sterling shares on a 6.2% yield.

It said the two-and-a-half-year-old portfolio, managed by Aquila’s Christine Brockwell in Germany, had ‘undergone a transformation’ last year. The completion of two construction projects in Spain and Norway had significantly reduced investment risk by increasing operating assets to 80% and causing a ‘step-change’ in earnings capacity. 

In addition, the portfolio was better diversified having added solar parks in Spain last year using money it raised from shareholders in late 2021.

Based on its current production and power price forecasts, Aquila expected this year’s dividends to be covered around 1.8x by income, with dividend cover stable at around 1.6x over the next five years.

Colette Ord, analyst at Numis Securities, the trust’s corporate broker, said the announcements combined with the strong earnings outlook and high quality portfolio split 48.6% to onshore wind, 46.4% solar and 5.1% hydro made the shares ‘an attractive package’. 

Liberum analyst Shonil Chande maintained a ‘hold’ rating with a €1 price target, arguing that ‘while the discount is harsh and the dividend is sell covered, there are issues with liquidity and the current inability to raise further capital combined with a low-risk, mostly operational portfolio means in our view that there are few levers for NAV growth going forward’.

Stifel’s Iain Scouller said: ‘The last remaining piece that would help the share price re-rate is a resolution on the legal case regarding the local herding community in Norway.’

In 2021, the Norwegian supreme court ruled that two windfarms – Storheia and Roan – had violated the traditional reindeer herding rights of the local Sami people. Aquila is not invested in these but the ongoing case could have implications for its Rock project, although it has previously said its asset is sited on a migration route not a winter grazing area.

‘No update has been provided and so we expect a resolution is not imminent,’ Scouller added.

The modest fourth-quarter rise in the trust’s NAV per share to 110.64 cents was driven by an increase in short-term inflation forecasts offset by a small decrease in power price predictions in the mild winter. There was a small increase to 7.2% in the discount rate used to value the fund’s cash flows and NAV.

Aquila said last year’s high power prices meant its revenues came in 19.4% ahead of budget, despite energy production missing its budget by 6.9% due to lower than expected wind levels in Greece and rain in Portugal.