TIDMFSFL
RNS Number : 7166I
Foresight Solar Fund Limited
09 August 2023
9 August 2023
Foresight Solar Fund Limited
(the "Company", "Foresight Solar" or "FSFL")
Q2 2023 Net Asset Value, Trading and Capital Recycling
Update
Foresight Solar, a sustainability-focused fund investing in
solar and battery storage assets in the UK and internationally,
announces that its unaudited net asset value (NAV) was GBP726.6
million as at 30 June 2023 (31 March 2023: GBP757.5 million). This
results in a NAV per Ordinary Share of 119.9 pence (31 March 2023:
124.2 pence per share).
Highlights:
-- Strong operational performance in the first six months of the year,
with electricity production 2.8% above budget, led to cash receipts
from subsidiaries of GBP52.3 million, 42% higher than in H1 2022.
Robust levels of contracted revenue support a dividend cover of
at least 1.5x for the next three years.
-- Power price hedges, higher-than-expected inflation and reduced windfall
tax payments offset downward effects of lower near-term power price
forecasts and foreign exchange movements.
-- A 50bps increase in the discount rate for UK solar projects was
the main driver of the Q2 NAV reduction.
-- Foresight Solar continues to monitor its discount to NAV and is
doubling its allocation of available cash reserves to the share
buyback programme to a total of GBP20 million.
-- The Company has identified around 200MWp of assets from its operational
portfolio for a phased divestment programme starting this year.
The proceeds will be used to reduce gearing and fund FSFL's current
expected pipeline until the end of 2025.
-- Post-period, Foresight Solar pushed out refinancing risk by agreeing
a one-year extension of its revolving credit facility under the
existing terms.
Summary of NAV key drivers for Q2 2023:
Item p/share movement
NAV on 31 March 2023 124.2
-----------------
Discount rates -3.2
-----------------
Inflation 1.4
-----------------
Power price forecasts -1.4
-----------------
Reduction in Electricity Generator Levy 0.9
-----------------
Project actuals -0.5
-----------------
Foreign exchange -0.6
-----------------
Share buyback programme 0.1
-----------------
Other movements -1.0
-----------------
NAV on 30 June 2023 119.9
-----------------
Persistently high inflation has led central banks around the
world to continue to hike base rates, with the Bank of England
recently raising its benchmark to 5.25%. In response to the
corresponding increase in the risk-free rate, Foresight Solar has
taken its UK levered solar discount rate to 7.5% from 7% (A total
increase in UK discount rates of 150bps since Q3 2022). Discount
rates in other geographies remained unchanged, prudently aligned
with relevant government bond yields in those countries. The
weighted average discount rate for the portfolio is now 7.55% (31
March 2023: 7.16%) - this increase represents the largest downward
adjustment to the Q2 NAV, with a negative impact of 3.2 pence per
share.
The Company regularly benchmarks valuations against market
transactions and demand for UK subsidy-backed renewable assets
remains high with private market deals continuing to close at
prices indicating compressed risk premia.
FSFL's inflation assumptions have proven conservative, so
incorporating actual figures for the period added 1.4 pence per
share to the NAV. In the UK, inflation has remained high, but, with
most forecasts predicting it will fall in the second half of the
year, the Company is leaving its assumption for RPI inflation
unchanged at 6.5% for 2023. Assumptions for the periods between
2024 and 2030 and from 2031 onward also remained the same at 3% and
2.25%, respectively.
During the second quarter, near-term power price estimates
continued to trend down from their 2022 highs. The latest blended
curves for the UK forecast a fall in prices between 2023 and 2026,
before converging with Q1 outlooks. Foresight Solar has prudently
hedged its production for those years, minimising the downside
impact to 1.4 pence per share. This fall in near-term power prices
also means a reduction in forecast tax payments under the UK
government's Electricity Generator Levy (EGL), leading to a
positive effect of 0.9 pence per share on the NAV.
By the end of June, Foresight Solar had repurchased more than
four million shares through its GBP10 million buyback programme,
delivering 0.1 pence per share of NAV accretion.
Other movements, which resulted in a total negative impact of 1
pence per share on the NAV, include the usual effects of dividend
payments, fund costs and time value of money, along with a modest
adjustment to fund-level working capital.
Trading update
Electricity generated by the global portfolio was 2.8% above
budget for the six months to June, predominantly driven by
higher-than-expected irradiation in the UK (6.2%) and Australia
(6.8%). Consequently, production in those geographies was 4.3% and
3% above forecast, respectively. The Spanish portfolio was
adversely impacted by heavy rains and record-high temperatures,
depressing generation 2.2% below expectation.
Strong technical performance across the portfolio helped offset
the impact of unpredictable weather conditions, highlighting the
benefits of Foresight Solar's geographical diversification
strategy. With projects in Australia and Spain fully operational
and cash-generative, the Company is in a good position to meet its
short and medium-term targets.
Capital allocation
With this latest update incorporating additional prudence, the
Board and the Investment Manager believe there remains a wide
disconnect between the share price and the underlying portfolio
value. The Directors have thus elected to allocate a further GBP10
million to Foresight Solar's ongoing share buyback programme,
doubling its total to GBP20 million and aiming to deliver
additional NAV accretion.
During the second quarter, the Company also concluded its review
of the global portfolio and identified preferred opportunities to
realise value and recycle capital whilst maintaining an
attractively balanced asset base. As a result, the Investment
Manager is proceeding with the phased divestment of around 200MWp
from the Company's operational assets, expected to commence this
year and continue into 2024.
Proceeds from transactions will be used to repay the revolving
credit facility and the share buyback programme will stay under
review. The Company will continue to invest in its existing
pipeline of opportunities with a focus on investments that are
strongly return-accretive. Based on present forecasts, completion
of the divestment programme will allow Foresight Solar to fully
fund its current expected pipeline until the end of 2025.
Regarding its existing pipeline, the Company will move ahead
with the construction of its 50MW Lunanhead battery storage project
with two-hour duration, which is better suited to take advantage of
emerging market conditions and dynamics to generate improved
revenues. FSFL also intends to progress its 50MW Clayfords project
on a two-hour basis in due course.
Revenue and cash generation
The Investment Manager continues to forward-fix electricity
sales at attractive rates under power purchase agreements and build
on the proportion of contracted revenue. In the UK, which accounted
for 84% of revenue, price fixes averaged GBP197/MWh in the first
half of the year - compared to the average N2EX Day Ahead price of
GBP108/MWh during the same period. Overall, in the first semester,
cash receipts from subsidiaries totalled GBP52.3 million, 42%
higher than in the same period of 2022.
The proportion of contracted revenue for the global portfolio
now stands at 90% for 2023, 85% for 2024 and 75% for 2025. This
active hedging strategy has substantially insulated Foresight Solar
from the fall in near-term merchant power prices. The revenue
stability and solid cash distribution also provides confidence in
the targeted 1.5x dividend cover for the next three years.
Gearing
In August, the Company secured a one-year extension to its
sustainability-linked revolving credit facility, limiting
refinancing risk until the new maturity date of February 2026. The
pricing structure remains unchanged: interest charged is linked to
ESG performance, with margins ranging from 185bps to 195bps over
SONIA.
Electing to use the proceeds from asset sales for future capital
needs instead, FSFL has not needed to exercise the option to
implement the GBP30 million accordion facility.
The Gross Asset Value (GAV), including Company and subsidiaries,
on 30 June 2023 was GBP1,237.2 million (31 March 2023: GBP1,268.2
million). The Company's total outstanding debt was GBP510.6
million, representing 41.3% of GAV (31 March 2023: 40.2%),
comfortably within the 50% limit.
I nterim results date
Foresight Solar will publish its interim results for the six
months to 30 June 2023 on 14 September 2023. A further Notice of
Results announcement will be released in due course.
For further information, please contact:
Foresight Group +44 (0)20 3911 2318
Matheus Fierro
(fsflir@foresightgroup.eu)
Jefferies International Limited +44 (0)20 7029 8000
Gaudi Le Roux
William Brown
Harry Randall
Singer Capital Markets +44 (0)20 7496 3000
Robert Peel
Alaina Wong
Citigate Dewe Rogerson +44 (0)20 7638 9571
Toby Moore
Lucy Gibbs
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END
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August 09, 2023 02:00 ET (06:00 GMT)
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