The Renewables Infrastructure Group (TRIG) has announced its annual results for the year ended 31 December 2023, which marks ten years since the company’s launch in 2013. Richard Morse, the company’s chairman, says that the underlying performance is strong, cash generation has never been healthier and the managers have been working hard to create additional value from within portfolio. However, this has been set against a challenging backdrop for the share price, with higher interest rates conditions contributing to a decline in TRIG’s valuation, with a sustained discount to net asset value emerging. Morse says that, if the interest rate cycle continues as expected, the coming year is showing signs of a more benign macroeconomic environment for the company.
TRIG has provided the following highlights from its results:
- Strong underlying performance with modest decline in valuation for the year.
- Robust pro-forma portfolio EBITDA of £610m (2022: £677m) reflecting strong achieved power prices.
- Healthy cash flow generation with dividend cover of 1.6x (2022:1.5x); or 2.8x (2022: 2.6x) before the repayment of £219m of project-level debt.
- 6.9p reduction in NAV per share to 127.7p (31 December 2022: 134.6p) driven by lower power price forwards and higher valuation discount rates.
- Power prices trended down during 2023 following reductions in gas prices. Since the balance sheet date, forwards for 2024-2026 have further reduced by c. 20%. Over a five-year horizon, a 10% reduction in power prices would reduce the company’s NAV by 2.2p/share.
- The weighted average portfolio valuation discount rate as at 31 December 2023 has increased to 8.1% (31 December 2022: 7.2%), reflecting the higher return environment.
Capital allocation highlights:
- Reduction in project-level gearing to 37% (31 December 2022: 38%), following debt repayment of £219m. Project-level debt is fixed rate and amortises over the subsidy periods.
- Retained cashflows and disposals helped reduce revolving credit facility (RCF) drawings by £34m. In 2024, the company expects to be able to reduce RCF drawings to about £150m.
- Five construction projects were completed, delivering 301MW of capacity during the year. All construction spend in 2023 was funded from retained cash flows.
- 2024 dividend target set at 7.47p/share, a 4% increase on 2023’s achieved dividend of 7.18p/share, balancing the strength of the company’s inflation-correlated cash flows with moderating power prices and inflation.
Capital growth opportunities:
- TRIG has an exclusive development pipeline of 1GW by 2030 from repowering, co-location & extensions and new site developments.
- Investing in development activities offers strong prospective risk-adjusted returns, significantly ahead of the portfolio weighted average discount rate, and provides optionality to take projects forward through build and into operations.
- Investment decisions consider an elevated return hurdle rate, which includes the return offered by the buying back the company’s own shares, portfolio construction and the company’s funding position.
- TRIG has the potential to fund the delivery of the development pipeline without the need for equity issuance, through retained cash, divestment proceeds and structural debt capacity. Company’s durable balance sheet and amortising debt is projected to see portfolio gearing reduce to 23% by 2030 on the current portfolio, whilst 38% of the portfolio remains ungeared.
- Operational and technical enhancements deliver capital growth through improving the generation output of TRIG’s existing portfolio. Examples include AeroUp, which has delivered a 5% energy yield increase at the initial trial site.