NextEnergy Solar (NESF) has concluded its strategic review, deciding to go for a “reset” rather than a possibly value-destructive sale, with the 16%-yielder cutting its 8.4p dividend to 4p-4.6p per share to free up capital to repay debt, invest in growth and lift battery storage to 30% of gross assets.
The shares slid 13% or 7.1p to 47.5p as income investors sold, but the company said the stock was finding buyers today given it offers an 8.4% to 9.7% yield with dividends set to be covered under a new policy of distributing 75% of free cashflow.
The move away from an 11-year progressively rising dividend comes as NESF targets a total long-term annual return of 9%-11%. Most of that return will come from the quarterly dividends but there will be capital growth of 1%-3% on average as the company continues to recycle capital at about half the rate of the past three years.
NESF is looking to recycle 120MW of investments over the next three years compared to the 245MW of realisations since 2023. In addition, a $50m investment in a private solar and storage fund made to give the UK portfolio greater exposure to OECD countries is set to mature next year, providing further capital to deploy.
Yesterday NESF sold two solar assets to Atrato Onsite Energy, the renewables fund that Canadian infrastructure group Brookfield took private in 2024. The £46.2m disposal was priced 3.9% below the last valuation which the company said raised a question why the shares had been standing on a 35% discount to net asset value.
Tony Quinlan, the new chair, said it was a “pivotal moment” for NESF. “A central element of this plan is addressing the current share discount through a realignment of the dividend policy to a 75% payout ratio, releasing capital to strengthen the balance sheet, improve asset health, repower sites, and invest in higher‑return opportunities such as energy storage, driving long‑term NAV growth.”
Our view
James Carthew, head of investment company research at QuotedData, said: “NESF found itself in a difficult situation. The strategic review did not flush out a bidder. The wide discount to net asset value lowers its enterprise value which prevents it from buying back shares under the USS preference share covenant. It has demonstrated that asset sales to reduce debt are possible but until demand for mature assets picks up, no quick fix, which rules out a managed wind-down. In need of cash, cutting the dividend was the best option. The board and investment advisers believe they have exhausted all other avenues and have laid out, in great detail, how the money conserved within the business can deliver 9%-11% returns. As a shareholder, I’m sorry to see the dividend cut but this feels like a sensible way forward.”
