Bluefield Solar Income Fund has published results for the year ended 30 June 2023. As previously announced, the NAV eased slightly to 139.7p from 140.4p, as higher discount rates (used to discount BSIF’s forecast cash flows to calculate the NAV) and higer interest rates marginally outweighed the positive impact of higher power prices and inflation.
However, underlying earnings soared from £66.8m to £108.4m or 12.0p per share to 17.7p per share. This, and the strong visibility that the board has on future cash flows gave the board the confidence to hike the dividend to 8.6p – above the 8.4p target for the year and 4.9% higher than last year.
The total NAV return for the period was 5.45%, however a wideing discount meant that the return to shareholders was -2.0%.
Ten year track record
The chairman had this to say – “We are delighted to report on a further period of strong financial performance in this, the company’s tenth year of operations. Over that decade, we have experienced significant changes in the emergence of renewables as an asset class and as a proportion of UK generation against a variety of backdrops in the investment environment. Solar and wind have grown from 8.5% to 28.8% of indigenous generation in this time. In this latest period of strong performance irradiation was above expectations, wind revenues outperformed our forecasts, we sold our electricity at record prices, our regulated revenues increased with inflation and our 129 solar PV plants performed well. Accordingly, we were able to increase total declared dividends for the period to 8.60pps (2022/23 8.20pps), ahead of our original target of 8.40pps.
My strong belief is that Bluefield Solar has a major role to play in the future of Britain’s rapidly changing electricity mix and your Board looks with confidence at the challenges and opportunities that lie ahead.”
Highlights
- BSIF generated 836GWh of electricity (2021/22: 688GWh), an increase of 22%;
- Installed capacity grew to 754.3MW of solar and 58.3MW of wind power (2021/22: 707.9MW and 58.3MW, respectively);
- The company completed the purchase of a 46.4MW operational solar portfolio for £56.0m, all accredited under the ROC regime with approximately 60% of contracted and regulated revenues, expiring in 2035;
- In support of the UK’s transition to Net Zero, 93MW of new build solar entered construction and about 62MW of solar Contracts for Difference (CfDs) were secured through the fourth Allocation Round (AR4);
- Planning consents were secured on some 350MW of solar projects and 19MW of battery projects, while the wider pipeline grew to approximately 950MW of solar and 470MW of battery storage;
- The company successfully re-financed its £110m three-year term loan with NatWest during the year, increasing the facility to £130m and extending maturity to December 2039. Hedging on £110m has been put in place for the tenor of the loan, at an effective all-in cost of c.2.7%;
- The company also increased its £100m revolving credit facility (RCF) by £110m, with an uncommitted accordion feature allowing for a further increase of up to £30m (the term of the facility has been extended to May 2025 with the lender group being diversified further with the introduction of Lloyds Bank plc, alongside existing lenders RBS International and Santander UK);
- At the time of writing, the group’s total outstanding debt stands at £597.4m and its leverage level stands at 41% of GAV (June 2022: 35% of GAV).
- Post period end one project received planning permission for 70MW of solar and 40MW of battery storage, and BSIF achieved allocations of CfDs on all 4 projects submitted to AR5.
Valuation
The investment adviser is currently seeing solar portfolios priced in a range of £1.20m/MW – £1.45m/MW, which is very similar to previous years (typically £1.20m/MW – £1.40m/MW). Higher interest rates have caused the board to increase the discount rate to 8.0% (June 2022: 6.75%). The operational portfolio is valued at an enterprise value of £1,195m (about £1.35m/MW for the solar assets vs. £1.38m/MW in June 2022).
Inflation
BSIF is a net beneficiary of inflation, since its regulated income (principally from ROCs) is index-linked, boosting its regulated revenues faster than the increase in its operating costs. Given that debt is predominantly fixed rate and amortising long term loans, the capital structure has been largely shielded from the rises in interest rates.
As the chairman points out “The flipside of this, however, is that as gilt yields adjust upwards in the face of inflation, bond prices go down; in tandem with others in our sector, the price of your company’s shares has likewise fallen, as investors seek a concomitant increase in yield from BSIF to preserve the risk premium between our shares and Government bonds. We therefore find ourselves in the invidious position of posting excellent operating results and having built a robust capital structure well suited to this environment, yet watching our share price fall to a significant discount to NAV.”
BSIF : Bluefield Solar boosts dividend after bumper year for earnings