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Sunny outlook for SDCL

One of the funds looking to raise money this week is SDCL Energy Efficiency Income Trust (SEIT). The fund is designed to produce income from investments in projects designed to improve energy efficiency, save companies money and contribute towards reductions in carbon emissions. On Thursday, it announced results for the year ended 31 March 2020 and it is good to see that it managed to both increase its NAV and generate more than enough income to cover its target dividend. (NB Morningstar’s estimated NAV on our website is patently wrong – they say 94p – the company says 101p. That means the premium isn’t as high as it looks either – we have highlighted the problem with Morningstar.)

For the current financial year, SEIT is targeting a 10% increase in its dividend to 5.5p.

The company has already expanded three times (not twice as we originally wrote) since it launched in December 2018 and now has a market cap of about £340m. They are looking for another £60m to help fund some new investments. The issue is being done at 104p per share, a 3% premium to the NAV at the end of March and a 2% discount to the closing price on 17 June.

They have a pipeline of projects worth £400m, including three projects with a value of over £100m. These illustrate the types of things that SEIT invests in.

One is a project to install solar panels on the roofs of European shops owned by an international retailer. There is huge potential for this type of project in our view and, as yet, few ways of investing in it. JLEN Environmental Assets has a portfolio of domestic rooftop solar installations and some of the commercial property companies have installed solar panels on some of their buildings (Aberdeen Standard European Logistics Income springs to mind) but we see huge potential in this area for SEIT.

SEIT already has a £5m investment in a vehicle, Supermarket Solar UK, which is installing solar panels on rooftops across Tesco supermarkets in the UK. Six of these are installed and generating power.  The agreement with Tesco could allow this investment to double in size to £10m.

Another is to fund the installation of an electric vehicle (EV) charging network in the UK. Again, there is much that needs to be done in this area if adoption of EVs is to take off.

The largest investment is a portfolio (bought in November last year) of nine combined heat and power plants in southern Spain. These plants process biomass and olive pomace (what is left over from the production of olive oil). Combined, they are capable of generating 125MW.

The beauty of the fund is that it is not exposed to the gyrations in stock markets. Even the COVID-19 pandemic seems to have only had a minor impact (some delays in commissioning of new projects, some exposure to businesses that have been affected by social distancing measures). As returns on cash and bonds lurch downwards once again and equity trusts have to dip into reserves to make up for the swathe of dividend cuts and suspensions, SEIT offers genuine alternative and reliable income.

SEIT : Sunny outlook for SDCL

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