Monday 4 March 2019

Bluefield Solar - New Addition

I first read an in-depth review of this investment trust via IT Investor last October and it has been on my watchlist for the past few months as I mull over my 'green' investment options. It's focus is purely on solar power in the UK and the technology is advanced but fairly simple with few moving parts to go wrong.

Their latest research article of last month - Walking on Sunshine - is interesting and provides a comprehensive analysis of the current state of play.

The combined output of electricity is sufficient to power 150,000 homes.

Last week, the company issued half year results to end December (link via LSE).
It appears to be on track for a good year with year on year earning up 40% to 4.96p per share (Dec 2017 3.53p).

Revenues were 17% above forecast due to the exceptionally sunny weather from July to October. Average UK sun hours in 2018 were 10% above the 20 year average - I expect this trend to continue. In February we had our warmest day ever with 21C recorded at Kew Gardens and 20.8C at Portmadoc in Wales...and wildfires in many parts of the country!

In addition, Bluefield have gained from rising power prices on contracts fixed during this period.

The company pays quarterly dividends and has a target of 7.7p for the coming year which gives a forward yield of 6.0% based on the current share price.

Chairman John Rennocks said: 

"Over the first six months of the financial year, the Company has laid the foundations for another strong year. Higher than average irradiation and higher power prices have been matched by a high performing portfolio, producing above expected generation.

The Company continues along the pathway of patience and discipline I described in my Statement in September 2018. We have sought to maximise revenues in the existing portfolio, have continued to amortise our long term financing and have continued to elect not to expand our asset base due to high valuations and/or poor quality portfolios.

We expect that this patience and discipline will soon be rewarded with the potential arrival of an economic UK market for solar assets without subsidy, for which the Company is well prepared to apply its highly effective investment model for primary market assets by funding through construction. This is the strategy that has allowed the Company to create a high quality and well priced portfolio, delivering in excess of 50% total return to our shareholders since IPO in July 2013."

Future Expansion

The trust's portfolio has been fairly stable for the past couple of years with 47 solar 'farms' located mainly across southern England. The UK governments subsidy for renewable infrastructure will cease next month (short-sighted imo) however, the cost of solar has fallen dramatically - 50% reduction over the past four years - and this should provide opportunities for growth.

One aspect of uncertainty is the life expectancy of its assets. The norm until this point has been 25 years. However, many of the trusts in this sector are seeking to follow the lead of Greencoat UK Wind which recently decided to add 5 years to the life of its assets. I imagine BSIF could easily move to 40 years subject to agreement with the owners of the sites. I understand negotiations have been completed on a quarter of these sites and are ongoing with a further 50%. This could add a further 5% - 7% to net assets. The shares are currently trading at a premium to NAV of around 12%.

The trust was added to my SIPP portfolio at 127p and was funded from the sale of Aberforth Smaller Companies Trust following a disappointing response to my email to the chairman.

This now boosts my 'green' allocation from 4% at the start of this year to just over 20%. My original aim was 10% for this year but having picked up my copy of "The Uninhabitable Earth" last weekend, I just have to become much more ambitious! (Review to's v scary).

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!

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