Harmony Energy Income (HEIT ) showed a strong quarter operationally in its latest results, but this was eclipsed by a disclosure that it made an error when calculating the October 2022 total underlying return.

Accoridng to the latest update investment manager Harmony Energy overvalued its short-term cashflows last year.

As a result, a one-off deduction of 3p per share was applied to the July net asset value (NAV) of 114.79p, or £260.72m.

This means the trust’s share price had declined 2.28p, or almost 2% from the 30 April.

Winterflood’s Emma Bird said error  was a ‘disappointing development’ that is unlikely to help reverse the fund’s discount, which is 23%.

‘Moving forwards, our view is that the fund should be as transparent as possible, in order to reassure investors that updated valuation control processes are sufficiently robust to prevent a recurrence. There is no doubt that management will see this as a missed opportunity.’

HEIT is not the first renewable trust to be hit by a NAV calculation error this year, with NextEnergy Solar (NESF ) uncovering an accounting software problem that overstated its accounts by £15.9m, contributing to a 5.5% drop in NAV to correct.  

Chair of the Harmony trust, Norman Crighton said the board was ‘disappointed’ and wanted to ‘reassure shareholders that the investment adviser and the board have taken swift action to understand and address the error’.

He went on to stress the group ‘will further strengthen relevant systems and controls’. 

Adjusting for the correction, NAV increased by 0.76 pence per share from the end of April to the end of July thanks to the energisation of a 20-megawatt Farnham asset in June.

Other factors impacting the NAV include the grid connection delay for the Rusholme project and the payment of the quarterly 2p per share dividend.

Harmony has not changed its revenue assumptions and discount rates, which currently sit at 10% for operational assets, 10.5% for those under construction and 10.75% for ‘shovel ready’ assets, reflecting high UK interest rates and the risk they pose to underlying cashflows. 

It is optimistic about the coming months as it anticipates benefits from the swifter launch of two new batteries, 99MW Bumpers and 49.5MW Little Raith, which are based in Buckinghamshire and Fife respectively.

The energisation of the two assets, which is expected this month, should boost the October NAV as the lucrative government-backed T-1 contracts will deliver additional revenues.

Once they come online, HEIT’s operational portfolio will more than double to 277.5MW.

Harmony expects average revenues to increase during winter in line with seasonal trends.

On Friday, the shares slipped 0.6% to 88.7p having fallen 1.1% over the course of the week. Year to date, the shares are down 25.3%, according to Numis data.

Numis analyst Colette Ord said HEIT’s NAV had shown a high level of volatility since launch in November 2021.

‘In part [this] reflects the lower level of contracted revenues compared with other infrastructure segments, combined with the relatively early stage of portfolio that is not yet delivering sufficient cash to pay the high dividend target of 8p, a 9% yield,’ she said, adding that it was a key reason for the wide discount.

She recommended infrastructure portfolios offering a high level of contractual income visibility with inflation protection, fully covering dividend targets and resulting in more stable NAV outcomes, would offer better value.