Foresight Environmental Infrastructure (FGEN) is on track to deliver covered full-year dividends of 7.96p per share, offering investors a 12% yield at the current depressed share price standing at a 37% discount to net asset value (NAV).
Chair Ed Warner pointed to a more diverse portfolio than other renewables funds for a comparatively resilient performance in its half-year results.
NAV was flat in the third quarter at 104.7p per share and over the six months to 30 September slipped 1.7%, or 1.8p, largely from the payment of 4p of quarterly dividends and the 1p impact of lower power prices. These were partly offset by the positive influence of inflation, share buybacks and operational improvements.
While acknowledging the economic and political headwinds afflicting the sector, Warner was positive on the outlook and said the board and manager Foresight were committed to narrowing the steep discount.
“Looking ahead, we are confident in our portfolio’s combined ability to deliver long-term predictable income for investors alongside attractive upside potential from our growth assets. We remain optimistic about the structural drivers underpinning the green economy,” he said.
Our view
Matthew Read, senior analyst at QuotedData, said: “These results show that FGEN continues to do many of the right things operationally, but, regrettably, this is yet to be reflected in its share price. Cash generation remains robust, with dividend cover once again comfortably above 1x, helped by resilient performance across the anaerobic digestion and solar portfolios. The uplift from the buyback programme also underlines just how accretive repurchasing shares at a near-40% discount can be.
“That said, the drag from updated power price forecasts and ongoing uncertainty around government proposals to alter renewables obligation and FIT indexation is doing little to soothe sentiment. However, FGEN’s diversified portfolio means the direct impact looks modest compared with more generation-heavy peers, but political risk is front and centre for the sector for the time being. The revised strategy – which focuses on the operational portfolio while maturing and ultimately recycling growth assets – makes good sense, particularly if disposals can help fund new opportunities without resorting to equity issuance.
“Shifting the strategy away from the earlier stage growth assets will take time, but, while they wait, shareholders are now benefiting from the new fee structure, which ties half of the manager’s remuneration to market capitalisation. The discount has been stubborn but, assuming the managers can execute and valuation uplifts come through, the discount should start to close, particularly if interest rates continue to edge down.”
