Foresight Solar (FSFL ) is doubling share buybacks and plans to sell some operational assets in order to tackle its wide share price discount.

Since May, when the renewables income fund set aside £10m for buybacks, the shares have continued to derate and trade 21% below net asset value, preventing share issues to raise new money. A further £10m of cash will now be used to correct the ‘disconnect’, the board said.

To prove its self-sufficiency the £743m portfolio has also identified around 200MWp of assets it could offload in a phased divestment starting this year.

It will use the proceeds to repay some of its £510m of debt and reduce its relatively high gearing of 41%, as well as fund its current investment pipeline until the end of 2025.

The investment company did not specify which assets could be sold but broker Liberum said it could involve its 72MW of solar projects in Australia which it said had consistently performed below expectations.

The capital recycling follows rival NextEnergy Solar (NESF ) which in April also announced its intention to sell assets to provide money for reinvestment.

Thurrock problem

Liberum analyst Joe Pepper questioned if either fund would achieve a full price on their assets given the financial crisis at Thurrock Council in Essex. According to the BBC, the council has been left with debts of £1.3bn after an ambitious investment programme saw it lend £655m to Toucan Energy Holdings which assembled a portfolio of 53 solar farms. Administrators to Toucan are looking to sell the solar farms, which Pepper said represented 3.5% of the UK solar market. 

‘Given low solar discount rates, limited access to attractively priced debt for potential buyers, and other large portfolios for sale in the UK market, we await disposal updates to prove valuations for both FSFL and NextEnergy Solar (NESF) and we do not expect any disposals to be achieved at significant premiums to NAV,’ the analyst said.

FSFL’s announcement came in a second-quarter update that showed it was the latest renewables fund to suffer a drop in value from rises in discount rates used to measure their long-term cash flows. Net asset value (NAV) dropped 3.4% to 119.9p per share at 30 June with recent declines in power price forecasts also a factor.

However, the 7.8%-yielder had good news on the strength of its dividends, saying its high level of contracted revenue gave it the confidence to say earnings would cover payouts by at least 1.5 times over the next three years.

Electricity generated by the portfolio came in 2.8% above budget, largely driven by higher-than-expected irradiation in the UK and Australia, though Spain was hampered by heavy rains and high temperatures, depressing generation 2.2% below budget.

At the end of June, UK operational assets made up 73% of installed capacity, Australia, 16%, and Spain, 11%. The fund said it would move ahead with construction of its third battery storage project, Scotland-based Lunanhead, which will have a 50MW capacity and two-hour duration.

Shares that have fallen 14% this year were broadly unchanged at 97p. There has been some recent purchases by the board as the stock has declined. In June, non-executive director (NED) Ann Markey, who joined the board in 2020, bought her first stake, snapping up 10,000 shares at 101p.

That leaves Monique O’Keefe, a NED appointed in 2019, as the only director on the four-strong board who does not own shares, according to Investec’s recently published ‘Skin in the Game’ report. O’Keefe is a co-founder of Kairos Wealth who also serves as a none-exec on Phoenix Spree Deutschland (PSDL ).