Octopus Renewables Infrastructure (ORIT ) has kickstarted asset sales as it targets an improved annual return and refocuses on its original construction plan.

The £981m fund announced two sales last week, the first being its 25% stake in UK-based green hydrogen and e-fuels development platform HYRO Energy for £4.6m. It was sold to the Octopus Energy Transition fund, which will pay £2.6m to ORIT immediately and the remainder on the delivery of key construction milestones.

ORIT also sold an 80% stake in the offshore wind development division of portfolio company Simply Blue to Japan’s Kansai Electric Power Company. While the sale price was not disclosed, the proceeds were used to partially repay a shareholder loan.

Simply Blue has been a sticking point for the fund which wrote down the investment by £5.7m to £15.1m in July.

The deal with Kansai followed the carve-out of the sustainable fuels business at Simply Blue earlier this year. The spin out business was renamed Nova Scotia Fuels, which ORIT has a 22.5% stake in.

Following the HYRO sale, ORIT chair Phil Austin said the trust would reallocate its development capital ‘towards sectors with project scale and realisation timelines which are closer aligned to the company’s current size and near-term objectives’.

ORIT is currently working towards a 2030 annual return target of 9-11%, including 1-3% of capital growth. This is part of a strategy to revert back to its original launch strategy of higher construction and development exposure.

Under the 2030 plan, it will invest around £120m a year to add 100 megawatts of capacity. Three-quarters of the portfolio will be operational assets, with 20% in construction, and the remaining 5% being development assets.

Panmure Liberum analyst Shonil Chade said the 41% discount the shares currently trade at reflect scepticism around the plan to turn the current 6% net asset value (NAV) total return into a 9-11% return.

‘In the context of how the sector has performed for the best part of two years, investors understandably need to see evidence of progress,’ he said.

‘It also requires very strong, and repeated, execution.’

The recent disposals should bring the gearing below 40% which ‘will be an important milestone’ in reaffirming ‘the market appeal of the assets held’.

Chonde believes ORIT is ‘undervalued’ given its portfolio ‘profiles more attractively’ than its peers on narrower discounts.

He pointed to the asset age, subsidy profile, technology and geography mix of the fund, all of which he said was important in terms of sales and ‘also in terms of longer-term value preservation and the sustainability of cash generation’.

ORIT reported a 1% decline in NAV in the third quarter as green certificate valuations ‘recalibrated’ and low wind speeds reduced cash generation.

Managers Chris Gaydon and David Bird recalculated assumptions on green certificate – which are electricity revenues generated from clean, non-carbon sources – using a ‘more conservative external long-term forecast curve which is closely aligned with recent market trends’, wiping £12.9m off the value of the portfolio.

However, this was offset by a slightly increase in short and medium-term power price forecasts, which added £5.2m.

Stifel analyst Will Crighton said there was a write-up in green certificates in the previous quarter, which he was ‘sceptical about’ and said previous valuations based on traded market prices created ‘unnecessary volatility’.

One concern for Crighton is the steady decline of the share price, which hit new lows of 58p over the quarter, despite another £8m of buybacks.

He said the rate of buybacks is likely to reduce as the 2030 plan is enacted.

‘Despite the discount now at 1%, we still do not see an obvious catalyst for the share price to rerate, with the imminent sales likely largely priced in,’ he said.