Update: Bluefield Solar Income (BSIF) has had “good interest” from potential bidders with a shortlist of parties doing due diligence and the sales process started in November progressing “in line with expectations”.
The £460m, 11%-yielding renewables fund also reported good operational performance in the half-year to 31 December despite a 7.5% drop in net asset value and 24.9% loss to shareholders that it said reflected a dislocation in capital markets and the government’s decision to change the inflation link in renewable incentives.
James Armstrong, founder and managing partner of fund manager Bluefield Partners, said: “Bluefield Solar continues to deliver on the primary objective launched at its IPO in July 2013, namely the payment of a market-leading dividend from the production of electricity from solar PV in the UK. However, the wider capital market environment has changed materially and with it, a material shift in the growth prospects of the publicly listed yield-focused renewable generators.”
BSIF shares dropped 4.4% to 73.8p in early trading but pared back some of the fall to 74.5p after Armstrong told analysts that the fall in NAV was not the result of potential bidders pushing for a lower valuation (see below).
Our view
James Carthew, head of investment company research at QuotedData, said: “These are disappointing numbers from Bluefield Solar. Generation issues occurred despite above forecast solar irradiation and appear to relate to grid outages, which are outside their control, and wind turbine outages. The impact of falling power prices has been felt by all renewable energy generators. A prolonged disruption to gas supplies from the Gulf could reverse that. However, the most significant issue was the decision to raise the discount rate used to value BSIF’s future cash flows from an average of 8% to 8.5%. This runs contrary to the direction of interest rates and therefore represents a significant increase in the risk premium. That, in turn, suggests the board believes that prices buyers are prepared to pay for operational solar plants are falling. This valuation must therefore have been informed by the conversations that it has been having with potential bidders. The shares are off 3p this morning, which puts BSIF on a 30% discount to its NAV (taking into account the 2p hit to come from the change to indexation). That still feels way too wide for a trust that is in due diligence conversations with more than one buyer.”
An update to my earlier comments: In this morning’s results call, the managers and the chairman were asked whether the formal sale process discussions had influenced the decision to increase the discount rate and the answer was no. The managers were also asked about the impacts from grid outages. They felt that the worst was over on that front and specific issues such as BSIF had with its 50MW West Raynham plant were behind it. One other point to highlight from the call is that the team are active in the market looking to restrike PPA contracts at higher prices to take advantage of the current volatility in power prices.
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