Octopus Renewables Infrastructure (ORIT) has committed £34.6m to the purchase and construction of a solar park in West Yorkshire as the 10%-yielder looks for growth investments to boost its annual returns under the five-year plan unveiled last year.
The 55 MWp Barnsdale Solar Park is expected to generate enough clean electricity for 19,000 homes when it is completed by Goldbeck Solar, a developer which previously worked with ORIT on its Breach Solar Park in Cambridgeshire.
It has been awarded a fixed price, CPI inflation-linked contract for difference from the government with construction set to begin after next March when the project has met its CFD requirements.
The acquisition comes as the solar and wind power portfolio pursues further construction-stage investments to achieve its new medium to long-term target of 9%-11% annual growth while supporting dividend cover. The £331m renewables fund saw net asset value (NAV) fall 5.8% in the second quarter after reducing its long-term forecasts for wind generation.
Fund managers David Bird and Chris Gaydon said: “The ORIT 2030 strategy is focused on building long-term shareholder value through disciplined capital allocation. Barnsdale is a good example of this approach. The agreed terms are attractive and the project is expected to deliver a return consistent with the ORIT 2030 targets, while the purchase structure carefully manages the remaining construction and delivery risk.
Bird and Gaydon will be speaking and taking questions on QuotedData’s “In the Hot Seat” show at 11am on Friday. Register here to take part.
ORIT shares eased 0.5% to 62.3p at discount of around 27% to NAV.
Our view
QuotedData senior analyst Matthew Read said: “Barnsdale looks like a sensible addition to ORIT’s portfolio and a good fit with ORIT’s 2030 strategy. The CPI-linked, government-backed revenues extending to 2041 should provide good cash flow visibility and help support dividend cover, while the conditional purchase structure limits exposure to the remaining construction risk. However, with ORIT’s shares trading at a substantial discount to NAV, the manager needs to demonstrate that reinvesting proceeds from disposals into new projects offers better value than buying back its own shares. Ultimately, the success of the strategy will depend on its ability to recycle capital efficiently, achieve its 9-11% medium to long-term return target and narrow the discount.”
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