TRIG’s key differentiator to peers is its broad spread of asset geographies and technologies. As such, it might be considered a one-stop shop for the burgeoning renewable energy sector.
As we discuss in the Portfolio section, TRIG has continued to invest overseas in building its portfolio. During 2019, 92% of new investments were in Sweden, France and Germany. This means that between 31/12/2018 and 31/03/2020, UK assets fell from 72% to 55%.
COVID-19 has had a limited effect on the operations and build-out of the portfolio. However, the company recently announced that its independent power price forecasters have reduced their assumptions on (mainly short-term) electricity prices; which, as we note in the Performance section, is likely to reduce the 30 June 2020 NAV by 5p (all things being equal).
In terms of the dividend, it is worth noting that 74% of TRIG’s revenues through to 31 December 2024 (and in excess of 80% over the next two years) are fixed. Therefore, notwithstanding the lower power prices expected for 2020, TRIG’s projected dividend cash cover remains positive. Electricity generation in the quarter to 31 March 2020 was 22% above budget. In April, the board reaffirmed its dividend guidance of 6.76p for the year ending 31 December 2020.
At the current premium of 13% to the 31 March 2020 adjusted NAV, the shares trade at a slight discount to the sector’s weighted average premium. When markets were experiencing significant volatility, the shares traded on a material discount to NAV for several days. In hindsight this was an opportunity that passed too quickly, and the shares have bounced back to a premium again.
One of the reasons that we think TRIG’s shares consistently trade at such a premium is the company’s clear appeal for ESG investors. TRIG offers ‘pure’ exposure to one of the most pressing needs of the global economy – to significantly reduce our carbon intensity.
At the same time, TRIG has provided strong returns to investors since its IPO in 2013, with NAV returns of 8.4% per annum up to 31/12/2019. The relatively smooth pattern with which TRIG has delivered these returns is a function of both the asset class itself, and the investment strategy employed by the managers.
Most recently, COVID-19 has clearly presented challenges for everyone, but TRIG’s management team have ensured the portfolio has “enjoyed good availability” and maintained operational capacity within 1% of the availability budget for March.
As the company grows, the managers have proved adept in balancing risks with achieving their target returns; but, perhaps more importantly, without significantly changing the portfolio’s overall sensitivities to the main risk factors.
The company’s strategy to invest more overseas will clearly increase its diversification – certainly for investors who also hold any of the other London-listed renewable energy funds, which tend to have a more local focus.
Yielding 5.5% at the current price, TRIG offers a highly attractive level of income, especially when the equity income picture elsewhere looks relatively cloudy.
|High yield of 5.5% with potential for NAV preservation from reinvestment of surplus cash||High premium to NAV in absolute terms|
|Pure exposure to diversified assets, technologies and subsidy regimes which are uncorrelated to equity markets and score well regarding ESG||Dividend cover not as high as funds which are not amortising (paying down) debt|
|Debt being repaid within the subsidy period (amortising)||Valuations based on long-term assumptions which may prove optimistic over time|