Premier Miton Global Renewables Trust has published its annual report covering the 12 months ended 31 December 2023. In a difficult period for the sector that it operates in, the return on the trust’s assets was -7.5%, which was meaningfully better than the return on the S&P Global Clean Energy Index of -20.1%. Thanks to the gearing provided by its zero dividend preference shares, the NAV return on the ordinary shares was -13.5% and, when that was coupled with a widening discount, the return to ordinary shareholders was -19.2%.
The zeros mature on 28 November 2025. At the year end, the asset cover on the zeros was 2.26x, down from 2.51x for the year prior.
The net revenue return per ordinary share in 2023 was 8.11p, up 11.2% on 2022. The total dividend for the year is 7.40p, up 5.7% on 2022.
Extracts from the manager’s report
Renewable Energy Developers
The share prices of many of the Trust’s renewable energy developer holdings, companies that develop projects from inception, fell during 2023, although, business wise, most investments performed well.
Starting with the positives, in Europe, Spanish listed Grenergy recorded a share price gain of 23.5%. Grenergy is primarily a solar developer, having a strategy to “sell some, keep some”. The company sold several Spanish projects at very attractive prices, which was well received by the market. Profits from asset sales are being utilised to build sizable new solar-plus-battery storage assets in the attractive Chilean market.
As referred to above, some holdings were subject to corporate activity during the year. One such was another Spanish-listed developer, OPD Energy which received a takeover offer from a private equity buyer. While the offer process had not completed by the end of the year, the holding was sold into the higher post-offer market price, realising a price 48.2% higher than the level at which the shares started the year. Further down the portfolio, another Iberian developer to receive a bid was Portuguese listed Greenvolt, although the holding was still held in the portfolio as at December 2023, its shares having risen by 4.9% in 2023.
Sentiment towards the offshore wind sector soured in the year due to problems at sector leader, Orsted (not held in the portfolio during the year), which was caught out by increased costs on development projects in the US.
This may be part of the reason why offshore wind specialist, Northland Power performed poorly, its shares losing 35.2% over the year despite good business development and solid financial results.
Another company whose share price did not match its fundamental performance was Bonheur. It operates a wind energy business (Fred Olsen Renewables) in the UK and Scandinavia, together with offshore wind installation vessels, plus a cruise line (Fred Olsen Cruises). The renewable energy business recorded reduced earnings on lower power pricing, but its cruise business experienced a sharp rebound from the COVID induced losses of 2021 and 2022. Its shares fell by 15.7% in the year.
RWE is now one of the world’s largest renewable companies. It undertook a large US acquisition in the year, and substantially increased its long-term growth forecasts at its Capital Markets Day held in November. Its financial results have been exceptionally strong through the year, benefitting from its ownership of flexible electricity generation (such as gas turbines and hydro-electricity) plus a very profitable trading business. Despite this, its share price fell by 1.0% in the year.
The share price of the other large cap developer held, Acciona Energias, lost 22.3% as very high 2022 earnings presented a difficult comparator.
Other smaller European developers, held further down the portfolio, generally performed well operationally. These tend to be held more for growth than yield. Across many investments, high power prices in 2022 gave a difficult financial comparator for 2023, disguising underling growth.
7C Solarparken, which owns smaller solar projects including commercial rooftop generation in Germany and Belgium, is a good example. Despite growing its operational portfolio capacity by over 10%, its shares fell by 15.1%. Likewise Baltic renewable developer Enefit Green, recorded a share price fall of 18.8%. It is on track to grow its operating capacity fourfold by 2026 and commissioned several new solar and wind assets in the year.
Yieldcos and Investment Companies
2023 was a difficult year for the Trust’s holdings in renewable energy investment companies, many of which traded with a high degree of correlation to government bonds.
In terms of the portfolio’s larger London-listed holdings, Greencoat UK Wind, NextEnergy Solar, Octopus Renewables Infrastructure, Aquila European Renewables, Foresight Solar Fund and Greencoat Renewables saw share price declines of 0.4%, 17.1%, 10.5%, 14.9%, 13.5%, and 12.2% respectively.
Published NAVs held up relatively well, with the negative effect of higher discount rates used in valuation calculations being mainly offset through higher inflation assumptions, the acquisition or commissioning of new assets, and solid operational performance.
Shares traded at higher discounts to their NAVs as markets focussed on the interest rate environment (despite this already being considered in the NAV calculation). While discounts persist, it is impossible for funds to issue new equity to acquire further renewable projects. Instead, cash flows generated in excess of dividend payments are being directed to buying back shares and the repayment of debt.
Longer term, I expect to see some consolidation in the sector, and in December, Octopus revealed it has approached Aquila with a view to a consolidation. The logic of a tie up between the two seems strong.
US-listed holdings fared no better, hampered by low wind speeds and higher interest rates. Clearway Energy (A Shares) and Atlantica Sustainable Infrastructure’s shares fell by 14.5% and 17.0% respectively. The holding size of the latter was cut back as Atlantica appears to be struggling to identify a long-term growth strategy.
Other segments
Drax Group’s (biomass generation and production) share price fell by 30.3% despite excellent financial results as Drax locked into the high 2022 power price environment through forward sales at high prices. The weak share price may be partly attributable to continued scepticism regarding biomass, much of the commentary being ill-informed in my view.
The UK battery storage funds also performed poorly, with available frequency market revenues falling on higher capacity in the market. National Grid’s system upgrades to allow batteries access to the balancing market should, however, provide improved revenue potential. Gore Street Energy Storage Fund has emerged as the Trust’s preferred holding as it benefits from international diversification, including substantial growth projects in the US. Despite good execution on its growth pipeline, its shares fell by 20.6% in 2023.
National Grid (electricity networks) and SSE (renewable focussed utilities) both performed relatively well, with their shares gaining 6.1% and 8.4% respectively. Both benefit from strong inflation linkages in their regulated businesses, while SSE is set to see strong growth from its large North Sea renewable projects over the coming years.
In the US, the portfolio gained a new holding in AES (renewable-focussed utilities), which had a difficult year but looks set to see good long-term growth in its renewable business. The position was showing a small gain at the year end. Also in the US, the Trust added a modest position in renewable finance company Hannon Armstrong in October, selling out in December with an 80.4% total return over the two months of ownership.
PMGR : Premier Miton Global Renewables ploughs on in difficult markets