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Rising discount rates impact GCP Infrastructure

Greencoat Renewables GRP Monaincha wind farm

GCP Infrastructure Investments (GCP) announced its quarterly results to June 30, 2023. NAV fell 2.2% due to increases in discount rates which reflect the current higher inflation and base rate environment, and recent market transactions that suggest the rising cost of debt has started to impact equity pricing. This has resulted in a c.40bps increase to the weighted average discount rate used by the company to value its portfolio leading to a decrease of c.2.5 pence per ordinary share.

The company also reflected that further reductions in electricity prices continue to decrease actual and forecast cash distributions to the company from its renewables investment portfolio driven by decreases in short-term power prices. This was partially offset by an uplift in long-term forecast power prices and the positive performance of the company’s hedging arrangements. In aggregate, movements in electricity price forecasts negatively contributed c. 0.4 pence per ordinary share to the movement.

The company noted in the report that notwithstanding the lower electricity price forecasts, its portfolio continues to perform materially in line with its expectations, maintaining that its mature, diverse and operational portfolio provides defensive access to income against a backdrop of market volatility and uncertainty. It is the view of the company that the long-term and structural demand for infrastructure, and particularly infrastructure debt, offers investors an attractive exposure to an asset class whose performance is non-correlated to wider markets and benefits from long-term and partially inflation protected income.

GCP Rising discount rates impact GCP Infrastructure

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