Over the 12 months ended 30 September 2022, GCP Infrastructure’s NAV rose from 103.99p to 112.80p. Higher electricity prices had a significant positive effect on returns even after the Valuation Agent reflected the expectation of an electricity price cap being applied to generators, capping the expected price for 2023 and 2024 at £150 per MWh. The aggregate impact of these changes has contributed 9.15p to the NAV in the year. Higher inflation added a further 3.01p.
The impact of the electricity generator levy is estimated as -1.5p on the NAV. However, the chairman says that it is expected the impact will be offset by higher long-term electricity prices and inflation.
The weighted average discount rate applied to value the investments increased from 7.32% to 7.47% over the 12 month period, taking 1.85p off the NAV.
The dividend was 7p, as targeted, and the board is keeping the same target for the current financial year. The dividend was 2.27 times covered on an earnings cover basis under IFRS, and 1.19 times covered on an adjusted earnings cover basis, calculated on the investment adviser’s assessment of adjusted net earnings in the year.
Investments made in the year totalled £127.4m, of which £99.2m were new investments and £28.2m was advanced to the existing portfolio. The new investments included financing a portfolio of electric taxis for a London-based fleet operator and the first investment in flexible generation supporting a borrower developing a portfolio of gas peaking and battery storage assets.
The supported living assets were refinanced, resulting in a reduction in the exposure to this sector from about 14% to about 11%, so too was the subordinated exposure to an operational waste wood biomass project in Northern Ireland, with GCP increasing its exposure as part of a first ranking senior secured structure.
Sales were made of interest in an offshore wind farm in the year (for 12% more than its value in last year’s NAV) and a small anaerobic digestion project in Northern Ireland. The chairman says that the company will continue to seek attractive disposal opportunities where it can efficiently make use of the capital repaid.
The pipeline totals £473m of which £388m relates to new investments and £85m of follow-on opportunities within the existing portfolio.
Gearing is described as modest – with £99.0m drawn on the revolving credit facility, representing a loan to value of about 10%.
The board is considering buying in shares to tackle the discount, currently 12.9%. [However, the attractive yield and now greater certainty about the impact of rising interest rates and windfall taxes may be enough to do that without intervention.]
GCP : GCP Infrastructure reports solid set of results