JLEN Environmental Assets says that its unaudited NAV at 30 June 2023 was £801.4m or 121.1p per share. This is a decrease of 2.0p per share since 31 March 2023, after paying the quarterly dividend of 1.8 per share.
What drove the change?
- Power and gas price fixes secured above previous valuation assumptions (+0.4p);
- higher quarterly inflation data than had been assumed in earlier valuations (+2.4p);
- downward revisions to near term seasonal power and gas forward prices, and forecasts provided by independent third-party consultants, net of the impact of the UK government’s Electricity Generator Levy (-1.0p);
- discount rate increases averaging 50 bps across the operating portfolio (-3.3p) bringing the overall weighted average discount rate to 8.9%; and
- other movements (including the performance of the portfolio (+1.3p)
[In common with other renewable energy funds, JLEN Environmental Assets has seen its discount widen in recent months and, at the close of business last night, it was trading on a 15.7% discount. For all similar funds, the most influential factor on this widening has been a belief that discount rates – used to calculate the net present value of cash flows for the NAV – would have to rise to reflect higher interest rates. We believe that JLEN has been conservative in its assumptions and that we are nearing the peak in interest rates. That suggests that the share price discount is overdone. Investors are said to have been selling funds such as these to buy bonds. However, as JLEN now offers the prospect of a 7.3% dividend yield this year, and a very reasonable chance of attractive dividend growth going forward (whereas bond income is static), we fail to see how these sales can be justified.]
Gearing
At 30 June 2023 project level gearing is 18% and overall gearing is 28%, with the revolving credit facility (RCF) £116.7m drawn from a total facility size of £200m. The company continues to maintain sufficient headroom in its RCF to finance its hard commitments relating to construction assets held within the portfolio.
JLEN : Modest hit to JLEN Environmental NAV from rising discount rates