Paying down expensive debt is the priority for The Renewable Infrastructure Group (TRIG ), which is eyeing up further disposals.

In a third quarter update the £2.6bn investor said it had completed the sale of three wind farms in Ireland for £22m, a 26% premium to carrying value. The proceeds, along with strong cashflow during the quarter, were used to reduce the company’s borrowings by £40m to £370m.

The board said it was considering the sale of more assets and would use the cash to meet existing investment commitments and to pay down debt, with any surplus used to buy back shares that now trail on a 22% discount to net asset value (NAV).  

The company, whose assets are managed by Richard Crawford at Infrared Capital Partners, expects to have repaid £200m of debt in 2023 with £500m expected in operational cashflow. The remainder of the cash will be used to pay its total dividends of 7.18p per share, which should be 1.6 times covered by earnings and put the shares on a 7% yield.

This strategy stands in contrast to Greencoat UK Wind (UKW ) which yesterday launched a £100m share buyback programme and hiked its dividend target by 14% in a bid to tackle its 20% discount.

TRIG tactics may leave it ‘exposed’

Peel Hunt analyst Markuz Jaffe said the decision to pay down expensive debt was ‘logical’ but could leave TRIG ‘exposed relative to peers targeting higher levels of dividend growth’.

‘We question if strategies offering higher levels of dividend growth will see share price ratings diverge over time,’ said Jaffe.

During the third quarter, TRIG’s NAV dipped 0.9% to 131p per share reflecting an increase to 8.1% in the weighted average discount rate with which it values its cashflows.

TRIG had managed to sell assets at a significant premium, but it noted long-term government bond yields increased further, weighing on its asset value. ‘Balancing’ the two factors, the company decided to raise the discount rate applied in the UK and EU by 0.2% or 20 basis points.

The investment company benefited from currency movements as its euro-denominated investments gained from a weak pound. This was offset by inflation which was marginally lower than anticipated.

Power price forecasts marginally increased in the three months but the impact on TRIG was limited as 67% of revenue is fixed over the next 10 years.  

Like its peers, TRIG shares have struggled this year. The shares have fallen over 18%, reducing the five-year total return including dividends to 16.6%. That is in contrast with the underlying asset growth in the portfolio of 64.2%, according to Numis Securities data.