Panmure Liberum analyst Shonil Chande has followed up the ‘interesting’ article we published yesterday by RM Funds’ Pietro Nicholls highlighting the opportunity in listed real assets funds as interest rates come down.

Having de-rated as rising government bond yields made their dividend yields less attractive, Nicholls argued the fall in one-year gilt yields following last week’s interest rate cut signalled an inflection point with improved ‘capital flows and performance’ likely to follow.

Chande said the core solar funds looked ‘particularly good value’ with 8-10% yields offering an average ‘spread’ of around 4.5% over one-year gilts, while the 7% yields on UK and Ireland wind funds provided a yield margin of around 3%.

The analyst flagged Greencoat UK Wind (UKW ), Octopus Renewables (ORIT ), Renewables Infrstructure Group (TRIG ), Bluefield Solar (BSIF ) and Foresight Solar (FSFL ) as good value, noting the share prices of renewable funds had followed the market lower in the past week.

Octopus, which along with UK Wind Chande highlighted as having an ‘underappreciated’ track record of increasing dividends with inflation, gained 1.3% today.

• The £424m Octopus yields 8% and at Tuesday’s close stood at a 28.7% discount to net asset value, according to Deutsche Numis data.
• The £3.2bn UK Wind yields 7.1% and traded on an 11.7% discount, the narrowest of listed renewables funds.
• The £648m Bluefield Solar yields 8.1% and was priced 17.2% below asset value.
• The £479m Foresight Solar yields 9% and offered a 24.8% discount to NAV.

Rising interest rates in the past two years hurt renewable fund share price ratings because they put upward pressure on discount valuation rates that in turned reduced the value of their assets and depressed NAVs.

However, the change in interest rate trajectory and the success of funds, such as Renewables Infrastructure Group and Octopus, in selling assets at or above their previous valuation had encouraged investors, Chande said, commenting ‘we suspect that concern over discount rates has, if not abated, then moved on significantly.’

Another way of highlighting the value in renewables funds, Chande said, was looking at their net cash yields before dividends and after finance costs. ‘TRIG and UKW last annual figures reflect yields of 13.7% and 12.8% to their market cap. The yields will be lower for most of the less mature renewable funds but are still sufficiently attractive.’