RCS - Greencoat UK Wind - Results analysis from Kepler Trust Intelligence

Greencoat UK Wind

27/07/2023 10:48

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RNS Number : 4291H  Greencoat UK Wind PLC  27 July 2023

Greencoat UK Wind (UKW)

27/07/2023

Results analysis from Kepler Trust Intelligence

Greencoat UK Wind's (UKW) NAV per share decreased in the period from 167.1p
per share on 31/12/2022 to 165.8p on 30/06/2023, reflecting an increase in
discount rates and lower short term power prices offset by higher short-term
inflation and valuation gains from recent and committed investments.

Operationally, electricity generation for the period was 18% below budget
owing to low wind. On the other hand, thanks to continued strong electricity
prices achieved and inflation linked cashflows, net cash generated by the
portfolio was £204.0m, with dividend cover of 2.1x.

UKW remains well capitalised to complete on its near-term investment pipeline.
Cash balances as at 30/06/2023 were £499m with zero drawn under the £600
million short term flexible gearing facility.

Kepler View

The results for the half year to 30/06/2023 illustrate the resilience of
Greencoat UK Wind's (UKW) business model. Despite the 18% lower wind resource,
dividend cover was 2.1x over the period. The key to UKW's resilience is the
ability of the trust to meet the dividend, and reinvest surplus cash to grow
the NAV. At the same time, conservative assumptions that underpin the NAV have
helped to mitigate the effect of the discount rate used to value the portfolio
increasing by a further 1%, reflecting higher interest rates globally.

Taking off costs (UKW has an OCF of 0.93%) from the levered portfolio return
of 11%, the implied NAV total returns for shareholders based on current
assumptions for inflation and electricity prices is c. 10% per annum. The
discount to NAV at which the shares currently trade, assuming the discount
narrows, will further boost these returns. In the announcement, the board
appear to be taking a long-term view as regards the discount, suggesting that
accretive investments and disposals of portfolio assets is a better and longer
lasting use of capital than buybacks.

For the first time, the interim results show the manager's expected dividend
cover at different levels of wholesale power prices. This, in our view, is a
significant development and will provide reassurance to investors on both the
ability of the trust to continue to pay an attractive dividend, but also that
barring a significantly lower power price, UKW will continue to have surplus
cash to reinvest, providing good total NAV returns as well as a high and
growing dividend. UKW's fixed revenue base (linked to inflation) means that
dividend cover is extremely robust in the face of downside power price
sensitivities. A dividend that continues to increase with RPI is covered down
to £10/MWh over the next 5 years.

In summary, with the levered portfolio return now standing at 11%, the after
fees prospective NAV return of 10% looks attractive in a risk adjusted basis
against many other investment opportunities. The assumptions underpinning the
NAV are conservative, and the managers point out that the portfolio has proved
robust in the face of downside power price sensitivities, whilst offering
upside to power prices, inflation, asset life extension, asset optimisation,
new revenue streams, and the interest rate cycle.

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