Tuesday, 18 February 2020

TRIG - Full Year Results

This clean energy investment trust was launched in 2013 and gives investors an opportunity to tap into the European renewable energy sector - wind, solar and battery storage. They aim to generate sustainable returns from a diversified portfolio of renewables infrastructure that contribute towards a zero-carbon future.

It has grown steadily over the past seven years, from £300m at launch to become one of the largest funds in the renewable infrastructure sector with a current market cap. of £2.2bn. The shares were first purchased for my portfolio just after the results were announced last year and topped up with discounted shares from the share issue last March at the price of 114p. I also subscribed to a further placing of new shares in September at 123p per share which makes TRIG the largest weighting in my 'green' portfolio - currently 15%.

The trusts works closely with InfraRed Capital who have extensive expertise in the renewable energy market and flag up opportunities for expansion and also with Renewable Energy Systems who manage the assets after acquisition and ensure they are operated safely whilst delivering maximum efficiency.

Since launch in 2013, TRIG has outperformed the FTSE All Share Index with total returns averaging 10% p.a. plus lower volatility. The shares are increasingly in demand from institutional investors wanting to respond to the demand from their clients for more climate-friendly ESG investments and as a result the shares trade at a premium to net assets of 15%.

Results

The company have today released results for full year 2019 (link via Investegate).

Net assets total return for the period was 11.9% and profits before tax came in at £162m (2018 £123m).

Capacity has increased by 50% to 1,664MW and the portfolio of projects increased to 74 with new assets in offshore wind and further expansion in mainland Europe.

The board have announced a final dividend of 1.66p for the end of March making a total of 6.64p for the year and will target a 1.8% increase for the coming year to 6.76p. The dividends are well covered by earnings of 11.4p per share.

Europe

Since the government effectively blocked new onshore wind and solar in England and Wales from 2017, there has been a marked slowdown in these markets. The focus in recent years has been offshore wind with the new government looking to significantly expand capacity from 10GW to 40GW over the coming decade.

Over the past year the company has stepped up the push into Europe - Sweden, France and Germany which now accounts for 45% of the portfolio - up from 28% at the end of 2018. The directors have amended their mandate so they can now invest up to 65% in Europe and a minimum of 35% in UK.

Gode Wind 1

The company have made their first investment in Germany - the Gode Wind 1 represents the second largest offshore wind development in the world. This sector is forecast to grow 5x to 35GW by 2035.

On the solar front, both France and Spain have ambitious plans to grow the sector with plans for 45GW in France by 2030 (up from 8GW) and 77GW in Spain (up from 5GW). The company are currently looking to expand into this sector which makes sense given the high levels of irradiation in Southern Europe.

Commenting on the results, Chair Helen Mahy CBE said:

"2019 marked another strong year for TRIG, increasing our NAV and our dividend target.  We have been well supported by our shareholders with two successful fund raises during the year enabling us to make further attractive investments. Renewable energy has a central role to play in decarbonising our energy usage and we remain confident that TRIG will continue to play its part in the energy transition.

Renewables will play a major role in tackling global greenhouse gas emissions and mitigating climate change, the defining issue of our time. At TRIG, we recognise that emissions are at record levels and continued action is essential to mitigate the adverse impacts of pollution and global heating for future generations. Our portfolio, including committed investments, generates enough renewable power for one million homes and is capable of avoiding approximately 1.1m tonnes of carbon emissions per annum.

TRIG is notable amongst renewables investment companies for its portfolio diversification, both in terms of geography, with investments across the UK, Ireland, France, Germany and Sweden, and technology, with investments in wind, solar and battery storage assets. This has helped us manage exposures to power markets, weather patterns and regulatory risk and thereby enhance our NAV resilience and dividend stability".

Conclude

The demand for more renewable electricity both in the UK and Europe will only be moving in one direction as governments come under increasing pressure to decarbonise their economies and meet their carbon emission reduction targets. The UK government have recently announced all new cars will be emission free from 2035 and this date could be brought forward to 2032. 35 million pure electric cars on our roads will require lots of clean energy.

TRIG 3 yr Share Price - currently 137p
(click to enlarge)

In addition, gas which heats 90% of our homes is due to be phased out for all new house builds from 2025 so there will be increased demand for alternatives for space heating. Hydrogen from renewable energy will be part of the mix as well as electric heat pumps.

The increased demand should provide support to long-term power pricing.
I would not be surprised to see some take-over activity in this sector over the coming year or two as the big oil majors step up their efforts to meet their obligations under the Paris Agreement. The likes of TRIG and Greencoat UK Wind could well become a target.

Happy to hold for the foreseeable future.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

12 comments:

  1. I'm happy to hold too and likely to top up in the future. Thanks for the update and review.

    ReplyDelete
    Replies
    1. Thanks weenie and good to hear you are looking to increase your renewable energy holding. The current windy weather should be good for business!

      Delete
  2. Currently trades at a >20% premium to NAV, i.e. more than 4 years of expected dividends - the dividends may well be sustainable, although this is not a given, but this premium certainly isn't ...

    ReplyDelete
    Replies
    1. Yes, many in this sector trade at a significant premium to net assets and this is certainly a factor to take into consideration on purchase. I have tended to take advantage of the various placings and new share issues which tend to be offered at a discounted price and this obviously helps.

      Delete
    2. gentlemansfamilyfinances22 February 2020 at 21:29

      That premium dissappears when you reduce the discount cash flow rate used.
      From recollection it is around 9-10% on projects with a very long time horizon.
      On that basis I feel that the premium to nav is justified if you like the idea of a low volatile high yielding cash generative business.

      Delete
  3. Hello, Interesting article. I've owned TRIG for a while and I'm quite happy at the moment. I'm looking to diversify a bit into mainland Europe (where I live) and I'm wondering if you've researched similar firms with a more mainland European focus. I've looked at Greencoat Renewables and they seem to be Ireland only. I already have shares with Terraform.
    Thanks

    ReplyDelete
    Replies
    1. Thanks Hague. Last year I diversified my renewable energy portfolio with Aquila European Renewables so that would be one to investegate. Here's a link to my article from last June

      http://diyinvestoruk.blogspot.com/2019/06/aquila-european-renewables-trust-new.html

      Delete
  4. Ciao DYI,
    One question... Have you ever considered a company called JLEN in the UK? I am doing some research on these smaller companies that are into renewable energy and this one popped up. It doesn't look that terrible, very UK centered in terms of production. I was curious to know if you've ever evaluated it...
    Ciao ciao
    Stal

    ReplyDelete
    Replies
    1. Hello Stal,

      I hope you are keeping well, I think things are hotting up around Europe!

      I cannot help you on this one as I am not keen on anaerobic digestion or household waste operations which is why I have not considered this for my portfolio.

      Good luck with your research, it would be good to hear your thoughts at some point.

      Delete
    2. Ciao DIY,
      Thanks for the reply! Well, to be honest the major issue with this company is the very small cap and the little to no diversification in geographic terms (it's almost a pure UK play). On the other hand today I have joined you in TRIG! :) First buy, if the stock was to fall I will consider adding up another "block". The research I've done on them was pleasing enough to start a position, they are not as small as JLEN, but they are not huge either. Well diversified, seems like they are posting good number and a cautious style of management. Dividend is also good, which is a must for me of course...
      Ciao ciao

      Stal

      Delete
    3. Congratulations on your purchase of TRIG and I hope it continues to do well for us both!

      As you say, it is one of the largest UK listed renewable infrastructure trusts with assets of c £2bn and has been moving into N Europe to diversify over the past year or so. JLEN is smaller with assets of c£530m.

      The dividend for TRIG is currently over 5% and of course there will be the usual FX considerations as they are paid in GBP quarterly. Much of the portfolio is covered by government guarantees...either feed-in-tariffs or ROCs but these have now ended so the assets will slowly roll forward into subsidy free which is a little more risky.

      There was an interesting link to Finumus on Monevator this past weekend on renewables which featured TRIG which will be worth a read!

      Delete
    4. Thanks for the article recommendation, very very interesting. It gave me another way to do due diligence on these companies, especially if small. I do not think that we are headed towards a railroad scenario as the author says, but it's important to understand how the industry can pan out in the future to avoid nasty surprises...

      Delete