Greencoat UK Wind (UKW)
01/08/2024
Results analysis from Kepler Trust
Intelligence
UKW's NAV per share decreased
in the six-month period from 164.1p per share on 31 December 2023
to 159.3p per share on 30 June 2024, a fall of 2.9%. This movement
reflected lower net cash generation in the period, and a fall in
forecast power prices. Adding back the dividend, UKW's NAV total
return for the interim period to 30 June 2024 was + 0.7%. That the
lower electricity generation and the failure of the Hornsea 1 cable
resulted in a dividend cover of 1.5x, is in our view testament to
the resilience built into UKW's investment model. We understand
that if Hornsea 1 had been fully operational, dividend cover would
have been in the order of 1.7x.
In the first half, UKW bought
back a further £44m of shares at an average cost of 140p per share
and at an average discount to NAV of 14.2%. As of 30 June 2024, the
company has bought back a total of £53m of shares under the £100m
programme announced in October 2023. The board state that they will
continue to maintain a strictly disciplined approach to
acquisitions, only investing when it is considered to be in the
interests of shareholders to do so. The board and the investment
manager continue to actively explore selective disposals.
Divestment proceeds would generally be expected to be used to repay
the revolving credit facility. Gearing as at 30 June 2024 was 39%
of GAV, with a weighted cost of debt of 4.63%. The refinancing
process of both the revolving credit facility and selected term
debt tranches is at an advanced stage and will conclude earlier
than the first maturity date, with "significant appetite to lend"
amongst lenders.
Kepler
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UKW has investments in a
diversified portfolio of 49 operating UK wind farms with net
generating capacity totalling 2,007MW. With a new UK government
having increased the goal of wind farm build out by an additional
£100bn, as the 5th biggest renewable generator in the UK (the top
four being utilities) UKW should be well placed to help deliver
this. UKW is therefore more relevant than ever, with a significant
societal benefit of its investments' allowing developers to recycle
capital, as well as being a generator of strong investment
returns.
With the levered portfolio
prospective total return standing at 10% the fees, UKW continues to
look attractive in a risk adjusted basis against many other
investment opportunities. At the time of writing, the discount to
NAV has narrowed from the widest point, and is significantly
narrower than peers reflecting in our view the quality of the
portfolio and the higher return.
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