The Renewables Infrastructure Group (TRIG) has sought to shore up shareholder support for its continuation vote next month with the £1.6bn InfraRed Capital fund saying it will raise £400m through disposals and modest debt issuance in the next 12 months, an increase of £300m on existing plans, in order to prioritise share buybacks to tackle its 34% share price discount and repay £240m of borrowing.
No new third party investments will be made and, if the continuation vote on 30 June passes, management fees will from July be based on market value not net asset value. Added to fee cuts made last year, this will save the investment company around £8m a year, a 28% reduction in costs, chair Richard Morse was preparing to tell investors at a capital market seminar this afternoon.
He said the company was already in exclusive talks regarding the sale at “an acceptable price” of a UK offshore wind asset to an experienced international infrastructure investor, which was doing due diligence. Analysts at Winterflood believed this was TRIG’s £160m stake in the Beatrice wind farm off the coast of Scotland.
“Disposals will be targeted to preserve the portfolio composition required to deliver the medium-term growth opportunity,” said Morse.
“Whilst we maintain a high conviction in TRIG’s investment case, it is clear that we must go further in our actions to manage the company’s persistent share price discount,” Morse announced before the investor meeting.
TRIG has been in the spotlight since a rebellion by shareholders in InfraRed stablemate HICL Infrastructure (HICL) scuppered a proposed merger with TRIG made last November. At the time investors such as CG Asset Management commented on TRIG’s vulnerability to falling power price forecasts and government policy changes.
Earlier this month TRIG reported the portfolio had stabilised in the first quarter with NAV per share adding 0.1p to 104.1p after falling 10.3% last year. Nevertheless, from a peak of 134.6p at the end of 2022, NAV per share has fallen 27.5%. Even with dividends included, the shares have fallen 31% over three years but have returned a total of 28% over a decade.
Despite the high 11% yield on the lowly-valued shares, TRIG is confident it can sustain a progressive dividend covered 1.1 to 1.2 times by earnings. It says a combination of disposals and investments in existing assets with buybacks can generate around 4% annual growth in distributable cash flow per share in the five years to 2030.
Morse said the board considered serving notice on InfraRed and becoming a self-managed fund or appointing a new external manager. However, consultation with shareholders showed a majority supported retaining InfraRed as the “best management team to deliver the board’s further discount management initiatives and support TRIG’s medium-term growth opportunity”.
TRIG shares rose 2%, or 1.4p, to 70.4p.
Our view
Matthew Read, senior analyst at QuotedData, said: “TRIG’s announcement represents a sensible and pragmatic response to the current environment. Recent sales processes across the listed renewables sector have shown that, despite the strong long-term case for these assets, now is not an especially attractive point in the cycle for large-scale disposals. Against that backdrop, TRIG’s strategy of selectively recycling capital over time, rather than pursuing wholesale asset sales, appears well judged.
“The proposed use of proceeds also makes good strategic sense. Share buybacks at current discount levels are highly NAV accretive, while reducing RCF borrowings should strengthen the balance sheet and improve financial flexibility. Retaining the ability to invest selectively into proprietary internal opportunities where returns exceed those available from buybacks also reflects a disciplined approach to capital allocation.
“The dividend is a key attraction for TRIG shareholders and so we are pleased to see both the further reduction in management fees which will help support the dividend, along with the focus on delivering a sustainable, well-covered dividend.”
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