This is a slightly expanded version of an article published in the Telegraph’s Questor column today.

Rising interest rates and volatile power prices have hurt clean energy funds but annual results from The Renewables Infrastructure Group (TRIG ) yesterday demonstrate their sell-off has gone too far and the shares look attractive.

The company, known by its ticker TRIG, is one of the largest London-listed largest renewable energy funds with £3.5bn invested in wind, solar and battery storage assets in the UK, Ireland, France, Spain and Nordics.

Managed by InfraRed Capital Partners, TRIG’s generating capacity of over 2.8 gigawatts (GW) can power 1.9m homes and avoid 2.3m tonnes of carbon emissions a year. This makes it appealing for investors worried about climate change, although being green hasn’t been easy in the past two years.

TRIG’s market value has fallen to £2.5bn as the shares have tumbled to 101.6p from a peak of 145p in September 2022 when energy prices soared after Russia’s invasion of Ukraine.

At its height TRIG stood at a 9% premium over net asset value (NAV) but the shares have derated to a 20% below NAV of 127.7p as investors have turned to UK government bonds, or gilts, for reliable income.

InfraRed’s Richard Crawford and Minesh Shah and TRIG’s operation managers at Renewable Energy Systems (RES) had to work hard to deal with rising finance costs, technical challenges and lower-than-expected wind generation.

Yet despite the difficulties, which knocked 6.9p off NAV per share and saw earnings drop £67m, or 10%, to £610m, TRIG’s quarterly dividends rose 5% to 7.18p per share, comfortably covered 1.6 times by revenues.

TRIG lifted this year’s dividend target by 4% – the rate of inflation it sees across its markets – to 7.47p per share. That puts the shares on a 7.4% yield, which is good against long-term gilt yields of 4.6% but in line with its 11 peers.   

Power prices are expected to fall as Europe ramps up gas storage in response to the threat from Russia and weak economic growth reduces demand, so it was reassuring to see over half of TRIG’s forecast revenues for the next 10 years are linked to inflation.  

There was good news on borrowing, with TRIG’s expensive, floating rate overdraft set to shrink from £364m to £150m this year as the managers sell assets to generate cash. Encouragingly, the preliminary offers TRIG has received are either at or above their latest valuation. Any bids, which could come in the next few weeks, are unlikely to achieve the 26% premium it got last August selling three wind farms in Ireland. Nevertheless, the comment suggests the current discount is too wide.

Like many renewable energy funds, TRIG is highly geared but expects its proportion of debt to steadily fall from 37% to 23% by 2030 as it repays loans with cash from zero-carbon power sales.

TRIG isn’t just an income fund. It invests for growth and this month bought battery storage developer Fig Power for £20m giving it a 400MW pipeline of projects to either build or sell on.

Happily, TRIG says it can fund its entire 1GW development pipeline from cash without raising money from shareholders, which it can’t do with the shares trading so far below asset value.

In addition, 40% of this expansion can come from organic growth, rather than acquisitions, upgrading existing assets through co-locating battery storage on wind and solar sites, or enhancing blades and software to increase productivity of wind turbines.

There was disappointing news with Crawford, the lead fund manager since flotation in 2013, announcing his retirement. Shah, his deputy of the past four years who previously worked on sister fund HICL Infrastructure (HICL ), will take charge in July.  Peel Hunt analyst Markuz Jaffe said Crawford’s departure was a ‘shame’ but took comfort in the big team behind the promoted manager.

Normally a change in fund manager would have me hold off making a ‘buy’ recommendation, but I’m reassured by Liberum’s Alex O’Hanlon saying TRIG’s strong balance sheet, diverse portfolio and dividend cover mean it is ‘one of the best placed’ renewable funds to re-rate this year, while Numis’ Colette Ord described the discount as ‘excessive’.

Higher interest rates mean the discount valuation rate TRIG uses to value its assets rose from 7.2% to 8.1% last year, applying downward pressure on the NAV. Minesh sounded confident TRIG could achieve a higher return than this which will support the valuation, particularly if rates start to come down.

‘Buy’ TRIG for income and the prospect of a share price recovery.

TRIG key facts

Market value: £2.5bn
Year of listing: 2013
Discount: 21%
Average discount over past year: 16%
Yield: 7.4%
Most recent year’s dividend: 7.18p
Gearing (Dec 2023): 37%
Annual charge (Dec 2023): 1%