NextEnergy Solar Fund (NESF) announced its interim results for the period ended 30 September 2023. The NAV fell by 5.2% while shares fell 6.6%, further widening the company’s discount to around 21%. The company raised its dividend by around 13% on the year prior.
The company has taken steps to manage its discount, introducing a capital recycling programme which completed its first phase over the period with the sale of Hatherden, a 60MW ready to build solar project, for £15.2m with the proceeds from the transaction used to reduce the company’s drawn short-term debt via its revolving credit facilities. That £15.2m figure represents a 100% uplift on the carrying value of the project in the end September NAV. The manager added value to the original project scope by increasing the size of the project from 50MW to 60MW and co-locating a 7MW battery project at the site. The deal will add 1.27p to the end December NAV.
The major negative impacts on the NAV were an increase in the discount rate used to value the company’s investments and a reduction in near-term forecast power prices. Energising the fund’s Whitecross project helped offset the impact a little. The 50MW Camilla battery project is progressing, after a hiccup with a contractor, and is targeted to be brought online in H1 2024.
The remainder of the disposal programme is progressing. An external adviser is assisting in the process and there has been interest from a number of third parties.
The dividend target of 8.35p for the fund’s 2023/24 financial year remains intact and is expected to be covered 1.8x.
Helen Mahy, chair of NextEnergy Solar Fund Limited, commented:
“In my first report since taking over as chair in August, I am pleased to announce another period of steady progress in the face of a series of geopolitical and macroeconomic challenges. In addition, your Board is taking decisive action to help narrow the discount that the shares trade on in relation to the value of its underlying assets, and today we are announcing the first step in that strategy, with the sale of the Hatherden solar project to release funds and reduce borrowings. We believe that this and the successful completion of our overall Capital Recycling Programme will put NESF in an even stronger condition to deliver long-term stable returns to shareholders, whilst making a significant contribution to Britain’s decarbonised future.”
Michael Bonte-Friedheim, CEO of NextEnergy Group said:
“NextEnergy Solar Fund has built up an excellent portfolio of high value renewable energy assets. We continue to manage this portfolio to deliver optimal returns for shareholders, whilst continuing to look for opportunities to develop it further.”
[QD comment (James Carthew): The headline fall in the NAV was down to factors outside of NextEnergy Solar’s control. There is hope that slower inflation means that interest rates have peaked, which could mean that discount rates fall again in time. However, as Hatherden shows, the manager is also able to add value to the portfolio through its activities. The dividend yield is attractive and the cash cover reassuring. The discount looks too wide.]
NESF : NextEnergy Solar Fund begins discount management strategy