Greencoat UK Wind (UKW) has made three disposals to raise £181m after a difficult first half left the UK’s largest listed renewables fund in breach of its 40% borrowing limit.
Declining power price forecasts and low wind generation knocked 5.2% from the £3.3bn portfolio’s net asset value, reducing NAV per share at 30 June to 143.4p from 151.2p at 31 December.
This follows last year when the same factors reduced NAV by 7.9%.
UKW’s European-focused sister fund Greencoat Renewables (GRP) also reported a 3.9% fall in NAV for the first half.
As a result of the latest decline, UK Wind’s £2.25bn of debts rose to 41.5% of gross assets, requiring it to offload its 32.6% shares in the Andershaw and Bishopthorpe onshore wind farms as well as 1% of Hornsea 1 offshore wind farm in which it bought a 12.5% stake three years ago.
That has been sold to another fund managed by Schroders Greencoat with another fund in the group due to buy a further 1% on the same terms next month.
Most of the sales proceeds will be used to repay borrowings and reduce gearing to 39.5%. Encouragingly the transactions were in line with the previous valuations.
James Carthew, head of investment company research at QuotedData, said: “Greencoat’s latest sales have all been done at NAV, which underscores how daft the current 19.8% discount is. The re-rating of the renewables sector over the last couple of months is welcome but has a long way to go yet.”
However, the lack of wind in the six months of the year saw power generation of 2,581GWh come in 14% below budget, leading to a £50m shortfall in cash generation to £163m.
That’s reduced cover for the RPI index-linked dividends to 1.4 times compared to 1.8 times historically, with analysts pointing out that the 9%-yielder’s policy of not amortising, or writing off the cost of loans over time, boosted income levels compared to rivals that did amortise debt, flattering its level of cover.
Stifel downgrades wind funds
Stifel’s Iain Scouller said: “The share price has recovered around 20% from its low point in April. However, this is a disappointing set of results given the size of the NAV fall, decline in dividend cover, and given that we think the discount is vulnerable to widening. On a c.25% discount the shares would trade at 110p, with a dividend yield of 9.4%.”
In a report today, Stifel downgraded the wind fund sector to “negative”, suggesting investors trim their exposure to UKW, Greencoat Renewables and Renewables Infrastructure Group (TRIG) on the back of weak generation, falling dividend cover and declining NAVs.
Investec analyst Ben Newell cautiously retained his “buy” rating: “We calculate that the company trades on a modest EV/EBITDA [enterprise value/underlying earnings] (last 12 months) multiple of c.9.0x, and a prospective steady state return at the current share price of over 12% pa. We believe this remains attractive, although we would highlight that this return is predicated on cashflow generation being in line with the budget per the NAV.”
Winterflood’s Ashley Thomas was also positive: “UKW retains a relatively strong level of dividend cover (in part due to non-amortising debt structure) and while H1 dividend cover was only 1.4x, the five-year forecast dividend cover is 1.9x.”
