Kathleen Gallagher, Investment Week, 11 May 2022:
At the beginning of this week (9 May) the JLEN Environmental Assets trust flagged that its Q1 NAV is likely to be 13-15% higher than the end of last year.
The trust, and a number of its peers, are sitting on double digit premiums as they benefit from, among other things, a rise in power prices and inflation expectations. But are further NAV increases on the cards for these companies? The jury is out…
However, it can be difficult to compare trusts in this sector because some apply forward pricing and others do not.
Greencoat, Renewable Infrastructure Group, Octopus Renewable Infrastructure trust and JLEN reflect forward market pricing, while Bluefield Solar Income and Foresight Solar Fund do not.
Gilligan explained the forward price contracts mean “the valuation process of this investment involves estimating the future cash flows and then ‘discounting’ them to arrive at a current value”.
The discount rate used is “crucial to the current value and is largely a reflection of predictability and risk,” according to Gilligan…
However, he added that it shows investors what the expected return on the portfolio or NAV is, not the expected return on JLEN shares…
However, analysts at Numis said the use of these “market forwards” leads to volatility of the NAV and “little guarantee that funds can crystallise these higher assumption in cash terms”…
“At this stage it feels one-off in nature and must reflect something specific within the JLEN portfolio,” the note said.
James Carthew, head of investment companies at QuotedData, disagreed, saying that while the size of the NAV uplifts across the sector may moderate, there is likely to be a trend of higher NAVs.
He explained that several trusts have been trying to lock in high power prices.
“At end December, price fixing arrangements were in place for 100% of JLEN’s wind portfolio by generation through to March 2022 which then tapered down to 40% by March 2024. So, revenues from this area are now rising,” he explained.
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