SDCL Efficiency Income Trust (SEIT) has reported a total return on NAV of 7.1% and maintained its NAV per share at 90.6p for the year ended 31 March 2025. Dividends totalling 6.32p per share were declared and covered by portfolio cash inflows. However, with the shares continuing to trade at a deep discount to NAV, SEIT’s board has announced it is now formally considering all strategic options to deliver value to shareholders.

The portfolio delivered cash inflows of £97m, up 5% year-on-year, and the trust generated a pre-tax profit of £70m, reversing a £56m loss in the prior year. The total portfolio was valued at £1.20bn at year-end, up from £1.12bn at 30 September 2024.

Dividend guidance increased despite discount pressures

SEIT met its dividend target of 6.32p for the financial year, with a dividend cash cover of 1.0x. The board has increased guidance for the year ending 31 March 2026 to 6.36p, and is targeting a cash coverage ratio of 1.1–1.2x going forward. Management highlighted improved operational cash flow and reaffirmed the goal of achieving progressive dividend growth, albeit balanced against the need to manage short-term debt.

The share price fell by 7.78% over the year, pushing the discount to NAV to over 40%, a level the trust has traded at since mid-January 2025. In response, the board has begun exploring “all strategic options” – potentially including asset sales, buybacks, or more significant structural changes.

Portfolio performance solid but exits delayed by market conditions

Despite the solid performance of the portfolio, the company was only able to execute one disposal during the year – the £90.8m sale of UU Solar in May 2024, which achieved a small premium to the September 2023 valuation.

Additional disposals were expected but delayed due to macroeconomic headwinds and weakening transaction activity in the US and UK infrastructure markets. The sale process for Onyx, SEIT’s US-based solar and storage platform, was well advanced, but fell short of final bids amid tariff-related uncertainty. Management is now pursuing alternative routes to unlock capital from Onyx, including project-level financing.

Similarly, the EVN Group’s capital raise – which may have included a sale of SEIT’s Zood EV charging portfolio – was postponed. However, SEIT has since arranged new debt facilities against Zood and expects to use the proceeds to reduce the revolving credit facility (RCF).

Gearing closely monitored, new RCF secured

Total debt stood at £626m at year-end, equivalent to 34% of enterprise value, and included £234m of short-term debt. SEIT has since refinanced its RCF on improved terms, with rolling interest rate caps and a three-year tenor (plus two one-year extensions). Gearing remains near its limit, but is actively managed through asset-level amortising debt and new project financing.

Portfolio-level amortising debt now accounts for 64% of total debt, with a weighted average maturity of 3.4 years and an average interest rate of 5.7%. The company expects this structure to naturally deleverage the balance sheet over time without the need for equity issuance.

Investment strategy and ESG credentials reinforced

SEIT reaffirmed its specialist focus on decentralised energy efficiency, highlighting that its portfolio is less exposed to power prices than traditional renewables. It remains classified as an Article 9 fund under SFDR, and reported over 1 million tonnes of Scope 4 emissions avoided during the year.

The trust changed its name in May 2025, dropping “Energy” from the title to become SDCL Efficiency Income Trust, in response to new ESMA guidelines on ESG fund naming.

Fees and shareholder engagement

The board and manager have agreed a revision to the management fee structure, which will move to a blend of NAV and market capitalisation from October 2025 – a response to industry pressure to better align fees with shareholder outcomes. SEIT has also stepped up its investor relations efforts, holding over 200 shareholder meetings during the year, and significantly increased retail and institutional engagement.

[QD comment Matthew Read: SEIT’s results are operationally solid and clearly demonstrate that the underlying portfolio continues to perform. Cash generation remains robust, distributions are cash covered, and management is taking steps to support asset values and refinance short-term debt. However, in an environment of higher interest rates, the level of debt appears to be weighing on SEIT’s share price and the lack of progress in asset sales, which would hopefully validate the NAV and allow SEIT to reduce its debt, is therefore a problem. However, the manager’s approach of refusing to sell good assets at distressed prices simply to please the market has to be in shareholders long term interests.

We agree with the board’s view that “the status quo is clearly unsustainable” and think that shareholders will be encouraged that a formal strategic review is now underway. We think that much hinges on SEIT’s ability to deliver disposals or refinancing events in the coming months and would hope that, once SEIT’s debt is reduced to a more comfortable level, the board gives consideration to buybacks which would be very NAV accretive at current discount levels.]