US Solar Fund (USF), a £120m renewables fund battling technical problems and a hostile policy environment under President Trump, has posted a surprise 3.2% gain in net asset value (NAV) and a 55% increase in its previously cut dividend target.
The Amber managed fund, which has shed a third of its value in the past three years, said its portfolio rose over $6m to $200.5m in the first half of the year with NAV per share increasing to 65 cents at 30 June from 63 cents at 31 December.
It said positive changes in tax and macroeconomic assumptions combined with lower discount valuation rates had more than offset the impact of a fall in forecast power prices.
As previously announced, following a $166m debt refinancing the company also raised its dividend target from 2.25 cents to 3.5 cents per share. The quarterly payouts are expected to be covered 1.1 times by cash earnings.
This puts the shares, which have halved over the same three years to 40 cents, on an 8.8% prospective yield and standing at a 38% discount. The price was unchanged in early trading.
However, total power generation of 350GWh (1H 2024: 365GWh) came in 10.2% below budget, caused by unplanned outages at seven assets combined with theft-related damage and grid disruptions.
Chair Gill Nott said the fund manager had been focused on urgent “site-specific capital investment initiatives” to reduce such incidents.
She also raised the prospect of disposals that the company has struggled to make in the past that could lead to a return of capital to shareholders. Nott said that while federal renewable energy and trade policy changes had increased uncertainty for new-build projects, these came at a time when energy demand in the US was forecast to grow.
“Third party revenue consultants expect these factors to drive higher power prices in the US, which will benefit existing generation assets. While it will take time for market conditions to fully respond to the new energy and trade environment, these policy changes may provide new opportunities for the company to monetise assets or otherwise create liquidity for shareholders,” Nott said.
Our view
James Carthew, head of investment company research at QuotedData, said: “It is good to see a net asset value in the renewable energy sector that is going up, but the lower long-term forecast energy prices that have been eating into the sector’s asset values had an impact here too. It was just that these were offset by a $7.9m positive move in USF’s discount rate (used to calculate the NAV by discounting future cash flows back to present day values). Of this, $2.5m was driven by a modest fall in the yield on 20-year US government bonds from 4.9% to 4.8%. This yield is now closer to 4.6%, suggesting that there is further uplift to come if this situation persists. The balance of that uplift came from the one-off effects of the company’s debt refinancing and a reduction in the perceived risk associated with USF’s assets. US bond yields are outside of USF’s control, but I would like to see the company get on top of its operational issues as soon as possible.”
