SDCL Efficiency Income (SEIT) has delivered the disposal it promised in December, selling a portfolio of operational assets to French green investor Kyotherm for £105m to cut debts, but has warned the 9% discount to net asset value (NAV) is as good as it can get in a buyers’ market and that bigger cuts will be reflected in its next valuation in June.
The portfolio sold includes SEIT’s interests in Capshare Future Energy Solutions, Sparkfund, Moy Park Biomass, Tallaght Hospital, Baseload, Lycra, SEEIPL, Northeastern US CHP, CPP Biomass, Supermarket Solar UK and GET Solutions.
The agreed price is around 9% below the carrying value of the portfolio at 30 September last year and means the disposal is expected to knock 1.2p off NAV per share that half-year results in December showed at 87.6p.
The headline price includes an earnout of up to £4m that SEIT will receive if agreed performance targets are met over the next three-to-five years. However, after distributions, costs and debt repayments, cash proceeds at completion next month will be lower at £84m.
The £490m renewable infrastructure fund will use this to reduce its borrowings on a revolving credit facility as it targets cutting its high level of gearing to 65% of NAV.
Chair Tony Roper said it was a positive outcome that was the result of “months of disciplined execution and reflects the attractive, yielding nature of the portfolio”.
However, he warned: “Given the competition for capital in the private capital markets, the board considers it unlikely that other individual asset sale processes would deliver equivalent shareholder value in the near to medium term, a factor that will be considered as part of the year-end valuation process, including the calculation of the company’s NAV.”
SEIT shares slipped 2.8% to 44.1p at the news. They have declined from a peak of 124p in July 2022.
Roper indicated a wind-down of the company, in which activist Saba Capital holds a 5% stake, was still on the agenda given the share price stood at an “untenable” 49% discount to NAV. He said “the sale of a high yielding asset portfolio, at even a modest discount to NAV and which has taken longer than anticipated, illustrates the challenges of achieving disposal activity at reasonable valuations.
“The board continues to view the status quo, including the current share price discount to NAV, as untenable and is working with the manager to progress strategic solutions with a clear focus on achieving value for our shareholders.”
SEIT said there was no change to the target dividend of 6.36p for the current financial year which puts the shares on a 14% yield.
Goldman Sachs International acted as sole financial adviser to the company in the transaction.
Our view
James Carthew, head of investment company research at QuotedData, said: “The debt reduction at SDCL Energy Efficiency is welcome but the message is that the NAV will fall and near-term, further asset sales are unlikely. The big question, which I am hoping will be made clear by the time of the results in 2026, is can the dividend be sustained at the current level over the long term? If so, it makes sense to sit tight and wait for a better exit environment rather than force the manager to make disposals that may be value destructive.”
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