NextEnergy Solar (NESF) has appealed for shareholders to vote for the company’s continuation at its annual general meeting (AGM) in August saying it is taking “decisive action” to narrow the 38% share price discount.
In its annual results the £271m investment company said talks were underway with potential buyers for the first 45MW of 120MW of assets lined up for sale in the “strategic reset” in March that saw the renewables fund slash its dividend from 8.4p to 4p-4.6p per share. In early trading the shares dipped 0.8p to 46.4p, putting them on a forward yield of about 8.5%.
NESF is also in “advanced” discussions to dispose of one of its development assets that was not part of its initial capital recycling programme. Proceeds are expected to further reduce the rolling credit facility on which it repaid £18m reducing the amount of short-term debt drawn from £205m to £170m in the year to 31 March.
Chair Tony Quinlan said it had been a “tough” 12 months for shareholders with the company having already disclosed a 20% fall in net asset value with NAV per share sliding from 95.1p to 76.1p, half of it in the final quarter.
While the decision to cut the dividend had been “difficult”, Quinlan said the company’s financial position was strengthened and the board was working hard “to unlock value embedded within the portfolio which is not reflected in the current share price and NAV”.
Amid a “particularly challenging” time for the renewables fund sector, NESF required time to implement its debt reduction and reinvestment strategy, he said.
“A discontinuation of the company would involve a forced sale of assets, which the board believes is likely to be value-destructive in the current market and would not be in shareholders’ best interests. Therefore, the board will unanimously recommend voting against a discontinuation of the company at the AGM,” said Quinlan.
The forthcoming continuation vote will be NESF’s third in three years. The votes have been triggered by its shares trading at an average of more than 10% in a financial year. Last year the proportion of votes for discontinuation doubled to just over 12%.
Our view
Matthew Read, senior analyst at QuotedData, said: “This has been a difficult year for NextEnergy Solar shareholders. March’s strategic reset brought a material dividend cut, while NAV per share fell sharply from 95.1p to 76.1p. Painful though it was, the reset was necessary. The old progressive dividend policy had become hard to sustain against elevated gearing, wide sector discounts and a weak market for renewable infrastructure assets, and the balance sheet needed strengthening. NESF is now on a more sustainable footing.
“There is still value in the portfolio and, in the current market, forced asset sales risk destroying that value. A measured programme of targeted disposals and RCF repayment makes sense, particularly given robust operational performance, healthy cash generation and opportunities from lease extensions, repowering and selective battery storage investment. We therefore agree with the board that shareholders should vote for continuation.”
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