Octopus Renewable Infrastructure (ORIT) has launched a five-year plan to nearly double the size of the investment company to £1bn through improved capital allocation and increased investment in higher-risk, higher-return construction assets and renewable developers.
Chair Phil Austin said more than 90% of shareholders backed the continuation of the company in June but had made it clear they wanted ORIT to become larger and more investable while staying true to its purpose.
“ORIT 2030 addresses this directly with a plan that balances yield, growth and impact, ensuring the company delivers for shareholders, while supporting the energy transition,” he said.
With the shares stuck on a 35% discount to net asset value (NAV), wider than the 30% sector average and a valuation gap that has contributed to a 21% shareholder loss over five years, the company promised to sell at least £80m of assets to cut debt to under 40% of gross asset value by the end of the year from its current 47%.
Building on measures announced at its annual results in March, ORIT said it would also make “selective” investments in renewable developers buying stakes in Nordic Generation and BLC Energy and acquiring Irishtown.
At the same time share buybacks would be increased this year to £30m (£21.6m have so far been bought back).
Once these were done, the company would look to achieve £1bn of NAV by 2030 through increasing investment in construction assets to 20% of the portfolio while maintaining a 5% allocation to developers.
A virtuous repeatable cycle of recycling capital and improving operational performance and the value of assets would further accelerate growth, it said.
It would aim to target medium-to-long term total annual returns of 9%-11% through a progressive and fully-covered dividend the 9.6%-yielder said.
In addition it would look to build around 100MW of renewable capacity a year.
As part of the revamp, the board is recommending that a continuation vote be held ever three years instead of five, with the next scheduled for 2028, to increase accountability to shareholders.
The statement came alongside interim results showing an underlying 0.2% loss with dividends included. Like other renewables funds, the decline reflected lower power price forecasts, higher discount valuation rates that depress NAVs and running costs and dividends, partly offset by positive adjustments to macroeconomic assumptions and some future cashflows being brought forward. Net assets dropped £30m to £540m at 30 June, partly as a result of share buybacks.
Our view
James Carthew, head of investment companies research at QuotedData, said: “It is good to see an upbeat mesage from ORIT that maps out a route to greater shareholder value. However, executing on the plan won’t be easy. There is a very obvious case for recycling mature assets with sales to investors with a need for long-term predictable cashflows such as pension funds and reinvestment in potentially NAV-enhancing new developments. If ORIT can demonstrate that it can deliver sales, pay down debt, and buy back shares, it deserves to be rewarded with a tighter discount and given the chance to invest for the future. M&A in the sector is probably overdue, but wide discounts complicate that and suggest that many investors will also be hoping for cash exits.”
