Foresight Environmental Infrastructure (FGEN) delivered a 1.4% total investment return in the three months to 30 June, despite a reduction in near- to medium-term power price assumptions.

Net asset value (NAV) slipped to £652.4m from £655.5m at 31 March, while NAV per share fell from 105.2p to 104.7p after allowing for the 2p per share dividend paid.

The fall in power price assumptions reduced NAV by 1.3p per share, but this was more than offset by other movements, which added 2.8p per share. These included 1.9p per share from the usual unwind of the discount valuation rate, and a 1p per share uplift from the Vulcan anaerobic digestion facility.

Foresight said Vulcan continued to perform strongly following the commissioning of its pressure reduction system last year. Additional gas supply contracts are also expected to support a significant increase in biomethane volumes injected into the grid.

The fund’s renewable energy generation portfolio was another positive, with output 3.8% ahead of budget during the quarter. Anaerobic digestion and biomass assets were particularly supportive.

Strong share price performance

While NAV was broadly stable, shareholders enjoyed a much stronger quarter. FGEN’s total shareholder return was 28.2%, reflecting a significant recovery in the share price and increased investor recognition of the fund’s diversified portfolio and dividend proposition.

Despite the rally, the shares remained at an 18.8% discount below NAV at the period end.

Stephanie Coxon, chair-designate, said that the quality of FGEN’s assets was beginning to be recognised, although she argued that the remaining discount continued to undervalue the portfolio.

The fund’s 29.2% gearing, or borrowing, at the end of June remained among the lowest in the environmental infrastructure sector. This was modestly higher than the 28.8% recorded at the end of March, with £128.5m drawn under its revolving credit facility.

Growth assets continue to progress

The fund’s growth assets also made progress during the quarter. CNG Fuels recorded an 8.1% increase in gas volumes dispensed compared with the same period last year across its 16 operating public access Bio-CNG stations. Construction is underway on two further stations.

There was also promising performance at the Glasshouse, with first-quarter EBITDA 27% ahead of budget and 41% higher year-on-year. Management expects growth to continue through the remainder of the year.

At the Rjukan land-based trout farm, works are progressing as management tackles operational constraints and seeks to improve production as the asset moves towards steady-state operations. FGEN provided additional funding during the period for capital works and working capital.

Dividend cover strong

FGEN declared a quarterly dividend of 2.01p per share, keeping it on track for its target of 8.04p per share for the year to March 2027. Based on the closing share price on 11 August, the annual target represents a yield of 9.4%.

The company expects dividend cover to remain within its target range of 1.2x to 1.3x after project-level debt amortisation, supported by the portfolio’s continued cash generation.

The dividend will go ex-dividend on 3 September, with a record date of 4 September and payment scheduled for 25 September.

With the portfolio continuing to generate cash and its growth assets providing potential for further value creation, the board said it remained focused on combining its progressive dividend policy with organic NAV growth and selective capital recycling.

Our view:

QuotedData’s Richard Williams said: “FGEN’s portfolio is less dependent on the level of wholesale power prices than its peers and this is reflected in a resilient showing. The 1.4% NAV total return in the June quarter is particularly encouraging given the 1.3p per share drag from lower power price assumptions. The fact that this was more than offset by other portfolio movements illustrates the benefit of FGEN’s diversification. It is pleasing that this is being recognised, with a 28.2% share price return during the quarter. With the shares offering a 9.4% dividend yield based on the 8.04p FY27 target, there is still a sizeable income component to the investment case. The question is whether this combination of a high and well-covered dividend, resilient cash generation and potential for NAV growth can persuade investors that the historic discount (still close to 20%) is no longer justified.”