SDCL Energy Efficiency (SEIT), the debt-laden renewables fund that disappointed investors this month by suspending dividends ahead of a managed wind-down, saw the value of its investments fall by 14% in the year to 31 March.

Operationally, its assets were sound, said chair Tony Roper and fund manager Jonathan Maxwell, generating £84m of cash although the inflow from the portfolio dropped from £97m.

The prime reason for the decline in net asset value (NAV) from £983.6m to £844.5m – with NAV per share sliding from 90.6p to 77.8p – was the difficulty SEIT had in funding portfolio companies with its shares stuck on a wide discount for over three years, preventing capital raises.

After a 2.2% rise to 34.2p today, SEIT trails 55% below the new NAV which looks excessive given the £105m asset sale in March to Kyotherm of France was priced at a 9% discount. The wide valuation gap reduces SEIT’s market value to £363m.

Roper cautioned that while the 14% NAV decline was in line with the discount on the disposal to Kyotherm, “it is not certain this can be extrapolated to the remaining portfolio as each investment has different characteristics, capital requirements and revenue drivers.”

However, Maxwell reassured shareholders that while SEIT’s weak balance sheet made it challenging to support the construction of projects, “these assumption changes do not reflect general deterioration in the underlying operational performance of the assets.

“They also do not constrain a future owner with the capital to deliver on the same growth opportunities where they remain attractive,” he said.

Including the then 14%-yielder’s first three dividends, shareholders made a loss of nearly 2% in the financial year. Their total losses over five years have amassed to 58.6% because of the wide discount. Roper acknowledged the “frustration this has caused, particularly for longer‑standing shareholders, and it was another consideration in our decision to announce the managed wind-down proposal.” This followed shareholders’ rejection of an earlier board proposal for SEIT to turn into an energy services operating company.

Shareholders, including activist Saba Capital which has quickly built a 21.6% stake this year, will vote on the proposed wind-down and amendment to the company’s investment policy on 10 July.

Maxwell said, “notwithstanding some financial and operational constraints, SEIT’s assets generate cash and generally are performing in line with expectations. Accordingly, our objective is to make as much cash available for distribution to shareholders as possible, by any means available.”

Our view

James Carthew, head of investment company research at QuotedData, said: “The NAV write down in SDCL Efficiency Income’s results was not as large as I had feared and certainly not as large as implied by its recent share price performance. However, my guess is that disposals will take time and, as they sit behind the debt providers and those businesses that must have investment to preserve their value in the queue to receive any proceeds, shareholders may have to wait some time before they see any cash from the wind down.”

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