No TRIG or UK Wind bids as Orsted sells offshore stake to Brookfield
Brookfield, the Canadian ‘alternative’ assets giant, has bought a £1.8bn stake in four offshore UK wind farms from Danish sustainable energy provider Orsted, dampening speculation that co-investors Renewables Infrastructure Group (TRIG ) and Greencoat UK Wind (UKW ) could attract bid approaches.
Brookfield, which recently trumped Segro (SGRO) in a bid for real estate investment trust Tritax Eurobox (EBOX ), has acquired a 12.5% stake in a 3.5-gigawatt portfolio that includes Hornsea 1, Hornsea 2, Walney Extension and the Burbo Bank Extension. Orsted will retain a 38% interest and continue to oversee the operations and maintenance of the wind farms.
The valuation of Orsted’s stake is relevant to the two investment companies given that Renewables Infrastructure – a £3bn fund managed by InfraRed – has a stake in Hornsea 1 accounting for 10.2% of its assets, while the £3.6bn UK Wind has 15.9% of its portfolio in Hornsea 1 and 3.2% in Burbo Bank.
Stifel analyst Iain Scouller said he had viewed both funds – and others in the sector – as vulnerable to bid approaches as their shares had derated to 22% and 17% discounts below net asset value (NAV).
‘However, today’s transaction may highlight another route that investors can use, i.e., buying individual assets rather than going through the complexity of bidding for listed funds,’ he said in a note on Wednesday.
The analyst assumed the transaction would provide support for the fund’s valuation of the projects and looked forward to hearing more from the companies on this ‘in due course’.
The sale marks progress for Orsted’s farm-down programme announced in February, whereby it sells stakes in assets to raise cash for new investments.
TRIG reiterates dividend guidance
Renewables Infrastructure today reiterated its dividend guidance as below-budget energy generation knocked revenues in the third quarter.
The company said it was on track for the full-year payout of 7.47p per share, which currently puts the shares on a 7.7%-yield. It said dividends were still expected to be fully covered by portfolio earnings despite a drop in cashflow in the second half of the year.
However, a commitment to bring down debt to £150m by the end of the calendar year will fall short, with debt expected to come down by £330m to £200m.
Over the three months to 30 September, NAV fell 1.5% from 123.4p to 121.6p per share, largely owing to transmission grid outages for the Merkur offshore windfarm and low power prices in Sweden, with overall portfolio generation coming in 5% below budget.
Over the quarter the portfolio’s average valuation discount rate remained at 8.3% and inflation assumptions were unchanged, although inflation in Europe is now projected to be 2% in 2024 compared to the 2.75% included in the June forecast.
Since the commencement of the £50m share buyback programme in August, £13m has been spent, yet the share price discount to NAV has widened from 16%.
Stifel’s Scouller said the fund’s performance was in line with peers and retained a ‘neutral’ recommendation or a price of around 97p, which is where they closed on Thursday.
Greencoat Renewables’ strong dividend cover
In a separate update, Greencoat Renewables (GRP ), the stablemate of the UK Wind fund, also reported a fall in NAV. Cash generation of €3.1m over the third quarter was 13% below budget due to low wind and grid constraints.
The £1.1bn euro-denominated fund’s NAV fell 1.7 cents to 110.4 cents per share, but the company reiterated its 1.685-cent-per-share quarterly dividend would be covered, with the full-year payout likely to be covered twice over by earnings.
Power prices had a 1% impact on NAV per share in the quarter, as did a revision to its P50 median energy production forecast.
Over the quarter, the 7.6%-yielder’s €25m share buyback programme completed but the shares remain on a 20% discount. The fund is continuing to pay down debt, which stands at 52% of gross assets. There is €191m remaining on the revolving credit facility.
