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The share price of Renewables Infrastructure Group (LSE:TRIG) is presently more than 20% below the value of its underlying assets. The company’s net asset value (NAV) has decreased by 4% since the beginning of the year, primarily due to lower power prices and weak energy generation performance.
Operational Challenges
The £2.5 billion investment trust, which was established in 2013 to focus on renewable energy generation and related infrastructure, has encountered several operational challenges. According to the interim results released today, energy generation over the past six months has fallen short of budget expectations. Contributing factors include two cable outages at offshore wind farms in the UK. While one outage has been addressed, remedial work is planned for the second site.
Dividend Coverage and Revenue Stability
Despite these challenges, the Renewables Infrastructure Group reported a dividend cover of 1.1 times for the six-month period, a decrease from 1.7 times the previous year. The trust also noted that two-thirds of its projected portfolio revenues over the next decade are secured at fixed energy prices, with 57% directly tied to inflation.
Share Price Performance Compared to Peers
Over the past three years, the share price of the Renewables Infrastructure Group has decreased by 10.7%, surpassing the average decline of 5.9% observed among other renewable energy infrastructure trusts. The current share price reflects a 20% discount to NAV.
Share Buyback Program and Valuation Adjustments
To address the valuation discount, the trust has initiated a £50 million share buyback program. The portfolio’s discount rates have remained steady over the past six months, but the weighted average portfolio discount rate has increased by 0.2%. This change is partly due to the acquisition of Fig Power, a UK-based energy project developer. Additionally, the trust has finalized the sale of four wind farms in Ireland, Scotland, and Germany for £189 million, achieving an average sale premium of 10% above the book value.
Management Commentary
Richard Morse, chair of the Renewables Infrastructure Group, highlighted the trust’s increased dividend of 12.5% over the past five years and the £50 million buyback program as part of the strategy to leverage the company’s cash flows and balance sheet. He emphasized that the management team has successfully completed £210 million in asset divestments in the past 12 months, contributing to the trust’s overall value. Morse also noted that the management team remains focused on adhering to capital allocation priorities and actively managing the portfolio to provide long-term value to shareholders.
