Premier Miton Global Renewables soars above new benchmark – Premier Miton Global Renewables (PMGR) has posted its full year results for the 12 months to 31 December 2021. During this time, the trust achieved a share price total return of 30.7% and a NAV total return of 26.5%. Total return performance, including income and costs, was 19.8%, well ahead of the trust’s new benchmark, the S&P Global Clean Energy Index, which delivered a negative 22.5%.
New benchmark
PMGR notes that its portfolio is differentiated from the index, as the trust remains primarily an infrastructure investor, with an emphasis on contracted and regulated underlying revenues. PMGR focuses its investments on companies that own renewable energy generation facilities, and other associated infrastructures such as energy storage and electricity transmission grids while the index, while also containing these companies, has exposure to industrial sectors such as companies manufacturing renewable energy equipment, for instance wind turbines and solar panels.
The index also has material weightings to more “tech” oriented areas such as semiconductors and hydrogen. The trust has only marginal exposure to these companies. PMGR’s performance can therefore be expected to be rather different from that of the Index in any given year.
Income and dividends
As a result of the new 2025 ZDP Share issue being substantially smaller than the ZDP Share that matured in November 2020, a net repayment of £16m was made in November 2020. This reduced the overall size of the company and hence the income generating capacity, so leading to reduced net income during 2021.
Revenue return per ordinary share in 2021 was 7.43p, a reduction of 20.3% on 2020, and is broadly consistent with the reduction in portfolio size offset to a smaller extent by underlying dividend growth.
In February 2021, following a review, the board indicated that it expected sufficient 2021 revenue earnings to support a dividend of at least 7.0p per share. In line with this, the board declared three interim dividends for 2021 of 1.75p per ordinary share during the year. The board has now declared a fourth interim dividend of 1.75p, to bring the total dividend for the year to 7p, fully covered by revenue earnings.
The company notes that the lower dividend is offset by lower financing charges from a reduced ZDP issue size, equivalent to a saving of £0.61m or 3.3p per ordinary share in 2021 as compared to 2020. ZDP finance costs are taken against capital, so of themselves, do not affect the level of revenue earnings. Underlying income from the portfolio remains healthy.
Statement from the chair:
On the positive side are the established long-term trends working in its favour, in particular the electrification of the global economy whereby electricity increasingly displaces the use of fossil fuels in heating, transportation and industrial processes. In addition, a combination of policy and cost factors should ensure that renewably-generated electricity continues to increase its market share over electricity generated using fossil fuels.
2021 has seen a significant increase in the cost of fossil fuels used to generate electricity. Of most concern to Europeans is the significant increase in the price of gas, which has in turn driven up electricity prices, and thereby further increased the cost advantages of renewable generation. The cost of carbon emissions has also risen, and carbon pricing is being mandated in new locations including the US and China. While fossil fuel prices may pull back over the next few years, we believe carbon pricing will become the main tool by which the external cost of fossil fuels is recognised, and this has positive implications for growth in the renewable energy sector.
The main headwinds we expect in 2022, in common with the rest of the market, are the ending of ultra-accommodating monetary policy, and increasing interest rates. Markets already assume higher rates, but in the event that rates are required to increase at a faster pace on the back of stubbornly higher inflation, then it is possible that both equity and bond markets could face difficulties.
Having said this, given the very high levels of government debt around the world, we think central banks will have little option but to ensure that real yields remain negative, with inflation ahead of nominal rates. This will be a positive background for equity investment.
Politically and economically, China looks to be a higher risk than it has been for some time. The property sector is over-extended and its domestic economy appears to be slowing. In addition, its underlying environmental problem of an over-reliance on fossil fuels could become a future financial headache as its export destinations begin to impose carbon border adjustment tariffs on its exports. We expect therefore that China’s renewable energy sector will remain attractive; however, this is an area your Board and Manager will keep under review.
The Russian invasion of Ukraine has caused a sharp increase in market volatility. Despite this, I believe that the portfolio is relatively well placed in comparison to equity markets generally. Renewable energy should see political goodwill as, being a domestic source of energy, it enhances security of supply. However, should energy prices become uncomfortably high, there is a danger of direct political intervention. The Manager and Board are monitoring the situation with the aim of keeping risk within appropriate levels, while at the same time being responsive to investment opportunities.
Overall, we feel that the number of attractive investment opportunities in the renewable energy sector will continue to grow, and that prospects for the Company therefore remain encouraging.
PMGR : Premier Miton Global Renewables soars above new benchmark