JLEN Environmental Assets (JLEN) reported its annual results for the 12 months ending 31 March 2024. It was a challenging year, with NAV per share declining 7.7% to 113.6p. The portfolio value decreased slightly to £891.9m from £898.5m the previous year. JLEN also reported a negative share price total return of -15.4%, due to a widening discount.
In common with other funds in this sector, JLEN’s fall in NAV was due to the negative impact from lower power price forecasts, which cost 5.4p per share, and the impact from increased discount rates (increasing by an average 0.75%) which cost 4.9p per share. This drawdown was partially offset by a positive contribution from inflation and the positive impact from guarantee of origin certificates (which is a monetary incentive for renewable energy generation).
At a portfolio level, renewable energy generation came in 4.1% below budget due to low wind speeds. However, JLEN’s revenue is diversified across a number of revenue types, many of which are not reliant on energy generation or power prices, and a substantial portion of energy generation is on fixed price arrangements. Progress was made on development and construction-stage assets, and active asset management enhanced the returns and efficiency of investments.
Several new investments were made over the year. These included:
- Its second green hydrogen development opportunity in Lubmin, Germany, bringing its total investment in the project to €16.9m.
- Acquisition of the remaining 30% shareholding in Bio Collectors Holding Limited for £8.0m.
- An additional investment of £8.4m into CNG Foresight Limited, which operates natural gas refuelling stations for heavy goods vehicles.
- A total of £9.3m invested into a range of battery energy storage projects during the year.
JLEN’s discount widened significantly over the year, finishing on a 17.5% discount and currently trades on a 23% discount. This will trigger a discontinuation vote at the September 2024 AGM. [However, we note that discount widening has affected all renewable energy funds indiscriminately and is largely due to circumstances outside their control such as the costs disclosure issues that have been plaguing the entire sector. It would be madness to wind this fund up now given the pressing need for investment in this sector, and the decent returns that the company has provided since launch and should continue to generate.]
JLEN declared a year dividend of 7.57p per share, in line with target and representing a 6% increase and was covered 1.30x by its revenues. The board has announced a target dividend of 7.80p for the next financial year, a 3% increase.
New name, new fee
The board has taken steps to improve the attractiveness of the trust. It has proposed that the trust be renamed Foresight Environmental Infrastructure, to reflect the ownership of the investment manager. It will also implement a new fee schedule to reduce the costs paid by the trust:
- A change in the basis of calculating the fee from Adjusted Portfolio Value to NAV;
- A change in the first tier of fee (up to and including £500 million) from 1.0% to 0.95% of net assets;
- The second tier fee of 0.8% now only applies from net assets of £500 million to £1 billion; and
- A third tier fee of 0.75% introduced for net assets in excess of £1 billion.
JLEN’s investment manager commented:
“The company continues to be presented with a substantial opportunity set by virtue of its broad investment policy. However, the Board and the Investment Manager are very aware of the current state of the market for listed renewable infrastructure; the model that applied for most of JLEN’s first 10 years, where acquisitions supported by frequent equity raises were the norm, is over. Further additions into the portfolio will require capital to be recycled from existing assets and any acquisitions will need to compare favourably to returns from the existing portfolio and also the implied returns to shareholders from buying back shares at a discount.
“As a result, the investment manager expects new investment activity in the upcoming year to be limited. The Company will continue to deploy capital to meet its existing commitments to construction assets and will consider opportunities to support value enhancements and follow‑on investments within the portfolio on their merits. Beyond this, new investments will be selective, making full use of the investment mandate and the investment manager’s ability to originate in the UK and Europe to pursue only those opportunities that clearly benefit shareholder returns. This is likely to favour operational assets that make a clear contribution to dividend cover, but may also include short-duration development and construction opportunities where outlay is modest and funds are only deployed for a relatively short period of time before earning a return.”
JLEN : New name and lower fees for JLEN Environmental