What it does
Since it listed in 2013, UK Wind’s generating capacity within the portfolio has risen to 980Mw from 127Mw with a value of £2.4bn spread across 35 operating wind farms.
In the past year or so the FTSE 250-listed company has completed several deals, with an agreement to purchase South Kyle in April, following the completed deal for Slieve Divena II in March, and acquisitions including Windy Rig, Twentyshilling, Tom nan Clach, Stronelairg and Dunmaglass last year.
Greencoat has already forecast a 7.1p payout for 2020 underpinned by the majority of its windfarm investments having ROC (Renewable obligation certificates) certification.
Renewable industry fundamentals remain very supportive.
Under the grandfathering arrangements for renewable ROCs, getting on for half of the firm’s revenue is “fixed” until a 2037 cut off, with the other half linked to wholesale electricity prices.
Although ROCs dominate the portfolio, Greencoat began to prepare for life without subsidies last July when it snapped up a 75% stake in Tom Nan Clach for £126mln.
What was different with this deal was that rather than ROCs, a 15-year contract for difference (CFD) fixes the power price received.
In December, UKW entered an agreement to build Glen Kyllachy, a subsidy-free 48.5Mw wind farm near Inverness with developer Innogy Renewables for £57.5mln, with the aim of exporting electricity targeted for July 2021.
In April 2020, the company agreed to buy the South Kyle wind farm for £320mln, payable when the farm begins commercial operations, which is expected in the first quarter of 2023.
How it’s doing
The latest trading update from Greencoat UK Wind was in April 2020, when unaudited net asset value was revealed to be £1.8bn, or 121.2p per share as of March 31.
A quarterly interim dividend of 1.775p per share was also announced with respect to the past quarter, following the 6.94p per share paid in 2019.
The alternate energy investment group said there has been no material impact from coronavirus on the company’s day-to-day operations or performance.
What the boss says: Tim Ingram, chairman
“Our portfolio is now providing sufficient electricity to power nearly 1 million homes and reducing carbon dioxide emissions by approximately 1.2 million tonnes per annum through displacing thermal generation.”
- NAV at end December of 121.4p
- Tom nan Clach comes onstream
- More acquisitions to grow the portfolio further
What the research says: Kepler
The dividend forecast for next year is 7.1p, representing a compound annual growth of 18.3% since listing.
NAV progression has also remained ahead of inflation, with growth of 22.1% against inflation over the same period of 17.4%.
In share-price terms, shareholders have enjoyed a total return of 115.1% since launch to 31 December 2019.
During 2019, the trust’s earnings were below budget thanks to wholesale power prices remaining below average last year and thanks also to lower power generation from the wind-farm portfolio.
Even so, UKW’s dividend was well covered at 1.4x. The manager’s long-term expectation is 1.7x.
UKW trades at a premium to the peer-group average, perhaps because of the higher investment returns so far delivered, the higher discount rate, and also because of its well-covered dividend.