TIDMUKW
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 GBP204.0m, 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 GBP499m
with zero drawn under the GBP600 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 GBP10/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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NRAFIFSADEIDFIV
(END) Dow Jones Newswires
July 27, 2023 05:48 ET (09:48 GMT)
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