Atrato Onsite Energy says that its NAV as at 30 September 2022 was £139m or 92.8p per share. The NAV reflects the valuation of the portfolio and incorporates the costs associated with the IPO, ongoing running costs and dividend distributions.
Atrato Onsite has invested one-third of its IPO proceeds to date. These assets are performing in line with expectations and together with higher realised inflation, made a positive contribution to NAV. This has been offset by the first year’s dividend, fund management fees and an increase to the discount rate used to value the company’s assets.
The board and the investment adviser believe that higher long-term UK government bond yields (in part thanks to the disasterous mini budget) require an increase to the discount rate. A weighted average unlevered discount rate of 6.6% has been used to value the portfolio. The increase in the discount rate equated to a reduction in the NAV of 6.5 pence per share. The statement says that this discount rate is materially higher than the average unlevered discount rates observed in the UK renewables market – the board is being prudent.
New investments will be appraised using this increased discount rate. As such the company expects to deliver a return in-line with its original target as set out at IPO.
Market Backdrop
A multitude of factors have driven UK wholesale electricity prices to historic highs. Daily prices reached almost £600/MWh in August 2022. For August as a whole, the average auction price exceeded £370/MWh, compared to £107/MWh last year and £37/MWh in August 2020.
This was followed by UK legislation that provided financial support for businesses struggling with higher energy costs. Further legislation has been proposed to impose an effective cap on the revenues earned by non-fossil fuel generators. While the level and scope of such a cap remains to be determined, the energy price cap is expected to be set higher than the typical rate for the company’s PPAs. The company is therefore confident that its PPA rates will continue to offer significant economic savings to clients.
Investment Update
£49m has been committed to a portfolio with a total capacity of 62MWp. Highlights of the portfolio include:
- 37 sites across the UK, in six industries, including pharma, manufacturing and grocery
- 90% of the forecast energy generation contracted under minimum purchase obligations
- weighted average unexpired Power Purchase Agreements (“PPA”) term of 19 years.
- about 40% of revenue benefits from uncapped inflation and about 50% from fixed annual uplifts.
- free cash flow generated from the portfolio covers about 50% of the target dividend.
Pipeline Update
The original pipeline remains broadly intact. However, the recent market backdrop of economic and political instability has led in some cases for the company and in other cases the off-taker, to delay the decision to execute on those deals. The company has revised its deployment timeline and now expects be fully deployed by the second quarter of 2023. The investment adviser has also increased its selected near-term pipeline from £86m to £100m, out of a total pipeline worth £360m. A more detailed update on the pipeline will be provided at the full year results announcement which will be published on 29 November.
ROOF : Atrato Onsite Energy slashes NAV