iShares Global Clean Energy ETF - Update

This exchange traded fund gives investors an opportunity to invest in a wide range of globally diverse companies involved in renewable energy.

It is an index fund and tracks the S&P Global Clean Energy Index which is made up of 30 of the worlds leading companies in the clean energy sector.

The fund was added to my green portfolio last March, shortly after I put my index funds under the spotlight and decided to move my portfolio away from fossil fuels. My initial purchase price was 433p and later in the year I topped up my holding at 490p and topped up a third time last week at 435p. The shares are held in my SIPP drawdown and also my ISA with AJ Bell Youinvest.

The ETF fund holdings include :

Enphase (6.6%) a global energy technology company and the worlds leading supplier of solar microinverters. These connect solar generation, storage and management on one intelligent platform. The shares are listed on the US Nasdaq exchange and have grown quickly over the past year from $9 to currently $32.

Solaredge Technologies (5.5%) another Nasdaq-listed US company providing inverter solutions across all segments of the solar PV market. Over the past year the stock has risen from $38 to currently $79.

Vestas Wind (6.5%) one I also hold as a stand-alone in my portfolio

Siemens Gamesa (7.4%) a Spanish-based renewable engineering company involved in the manufacturing of wind turbines and related servicing. Their products have been installed in over 90 countries all around the world with a current combined capacity of 100GW.

Returns

The fund had a good run over the past year reaching a high point of 620p in mid February but was obviously affected by the global sell-off and the share price dropped back around 30%. At the current price of 439p my total return has been  -5.0% for the year including dividends of 8.2p which is a yield of just below 2.0% and subject to exchange fluctuations.

The global renewable energy sector is likely to see continued growth over the coming decade as the world attempts to address the climate crisis and move to curb carbon emissions. We are weaning our economies off fossil fuels and the transition to clean energy such as wind, solar and wave power is well underway and likely to accelerate. As can be seen from the chart, the global renewables represented by INRG has performed much better than the oil sector represented by RDSB.

 

One Year Share Price  INRG v RDSB
(click to enlarge)

I have taken a punt on a few individual companies such as Orsted, Ceres Power and Vestas Wind for example but a diversified approach with the likes of this ETF probably makes more sense so I am happy to continue holding these shares. They currently make up around 9% of my green portfolio.

Once we get past the coronavirus panic, I am hoping this ETF will bounce back but for the time being I think it's just a case of sit tight and try not to panic!

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!

Smart Metering Systems - Portfolio Addition

SMS is an AIM-listed small company with HQ in Glasgow. Current market cap. is around £650 million. It employs over 1,200 people throughout the UK and its core business as the name suggests is the roll out of smart meters and carbon reduction assets to facilitate the transition to a low carbon future.

They offer a comprehensive service to the energy suppliers including the operation of metering databases as well as connection services directly to large energy consumers and multi-site operations. No other UK organisation offers the same in-house service.

Their mission is simply to deliver the future of smart energy. Customers include the large utility companies as well as smaller independent providers and new market participants; large UK housebuilders and also property developers; large supermarkets, retail chains, banks as well as rail and telecoms companies

Smart Meters

If the UK is to reach its target of net zero emissions by 2050, it will be crucial to look at new ways of how energy is created, stored and used. Smart meters will be an essential key to the creation of a more flexible, decentralised low carbon energy system and the government are already committed to the widespread roll out of smart meters by 2024. So far, around 16 million homes have been converted which leaves a further 36 million homes to have a smart meter fitted over the next four years.

Many energy providers will no longer allow customers to switch supply unless they have a smart meter so this should help to speed up the roll out.

Smart meters connect the user with their energy supplier and the wider energy network. When enough customers are connected, it will be possible to more accurately predict how much energy is required around the country at any particular time of day and should help to match supply and demand and balance the entire grid. Another feature is the possibility that relatives could be alerted if elderly people showed signs of dementia due to unusual energy usage or dangerously underheated homes in Winter for example.

It should be possible to create a local neighbourhood network and trade energy with other groups or communities as well as sell surplus energy from combined solar energy panels to the highest bidder. Another aspect is using smart time-of-use tariffs to charge the electric car at the cheapest rates and also use the combined resources of energy stored in car batteries to move both ways.

Results

The company recently announced results for the full year of 2019 (link via Investegate). Pre tax profits grew by 2.1% to £5.5m on revenues of £114.3m (2018 £98.5m). The full year dividend was lifted by 15% to 6.88p and a final dividend of 4.58p will be paid 4th June with XD date of 23rd April.

There was a 20% increase in recurring revenues to £90.1m and assets under management increased from 3.1 million to 3.7m over the year.

They also announced a new partnership with Columbia Threadneedle Sustainable Infrastructure Fund to develop its pipeline of carbon reduction asset opportunities.

Earlier this month the company agreed a sale of a minority of their meter assets for £291m. This will enable the implementation of an enhanced long-term sustainable dividend policy.

Commenting on the results, Alan Foy, Chief Executive Officer:

"A 20% increase in our key financial metric - ILARR - and a 14% increase in EBITDA in extremely challenging markets, is a testimony to our market position and operational capabilities.

Last week's transaction will not only realise considerable cash returns and demonstrates the substantial value of our smart meter portfolio but also will enable us to enhance greatly shareholder value with a significant and sustainable increase in dividends.

The UK is the first major economy to adopt net zero emissions by 2050, mainly by electrification strategies. This will need the establishment of a decentralised and decarbonised energy system as well as substantial capital to meet that target.

A combination of our strengthened balance sheet to support our smart meter rollout programme, today's partnership announcement with ESIF and our energy management division's track record, positions us extremely well to accelerate and rapid expand our CaRe assets in the current and emerging electricity generation, storage, lighting, heating and transportation markets."  

12m share price comparison v AIM 100

The markets responded positively to the results and sale of assets, the share price briefly topped the £6.00 level but has retreated due to the COVID-19 fears. The shares joined my portfolio this week at the price of 558p. I am keeping fingers crossed this is not another acquisition that would have been better made a week or two later!

However as Novel Investor reminded me yesterday:

Bargains exist in this market. Opportunity seekers waiting for the “right” time to buy will never find it. At some point, just do it. You’re practically guaranteed to be wrong in the short term, but right in the long term. It just takes courage.

Stay safe, avoid the crowds and keep washing those hands.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

Legal & General - Back On Board!

Readers may recall that this shareholding was added to my portfolio last August however it seems to have been edged out a few months later when I needed additional funds to purchase my AFC Energy shares. I continue to follow sold investments and what sparked my renewed interest was the announcement that they were launching a new fossil-free pension fund later this year - something I have been pushing for over the past year or so.

Although far from perfect, LGIM have a decent record on climate-related issues and try to hold companies to account at their AGM and push directors of the large oil companies to comply with their obligations under the Paris Agreement on climate change. In a recent survey, Shareaction examined the record of 75 of the world's most influential asset managers on issues of responsible investments, climate change and human rights. L&G and Aviva were two of only five managers to be awarded an A grade. However 50% of managers had a very limited or substandard approach to ESG issues - in fact the six largest global operators including BackRock (D) and Vanguard (E) were all in the bottom two catagories and all based in the US which suggests the Americans fund managers under the Trump administration are far less progressive on ESG issues.

Obviously when investors can choose where to invest their long-term pension savings, many will be attracted to a fund that excludes the sort of companies like Exxon, Shell and BP that continue to compromise the very future those savers will be looking forward to in retirement.

50% fall in Shell and BP 2020 Year to Date
(click to enlarge)

During the recent market turmoil, these fossil fuel multinationals have been hammered with the share price falling by over 50% since the start of this year. Personally I don't really see them recovering any time soon without a fundamental shift in strategy to embrace renewable energy and phase out oil and gas to meet their obligations to the wider global community.

Of course LGEN has been caught up in the market turmoil and its share price has fallen by over 40% since January so I was able to pick up the shares for my portfolio at 168p on Monday. That was a considerable discount - 39% - to the 275p when I sold them last November.

The company released results for the full year 2019 (link via Investegate). Profits increased by 12% to £2.1bn with earning per share of 28.6p which supported a 7% uplift in the dividend to 17.57p which makes a nice dividend yield of over 10% at my purchase price. The final dividend of 12.64p will be paid 4th June and the shares will go XD 23rd April.

I must admit to having underestimated the seriousness of this outbreak and its impact on the global markets. In February, I was thinking it would not be so dramatic and possibly we would all be over the worst by Easter. As a result I have jumped in too early with some of my recent additions. Of course, this outbreak poses threats but it is also an opportunity to gain experience and to understand more about ourselves. These are the most testing of times and the markets are understandably jittery so it would not surprise me at all to see further weakness in the coming couple of months. 

Coronavirus takes down the global economy...

However, this pandemic will start to blow over, the pressure will ease and we will all resume our normal routines and the markets will bounce back...they always do. So it's just a question of patience, trying to keep calm and maintaining a sense of perspective - of course, easier said than done!

Stay safe.

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!

Asset Allocation Re-Visited

Asset allocation is one of the most important decisions every investor needs to consider if they are to be successful over the long term. So, with the markets in freefall due to the Coronavirus pandemic, this is probably a good time to re-evaluate asset allocation and attitude to risk.

It’s really a question of looking at the possible options where investments can be placed and deciding what proportion to put in each one. The usual classes of investing asset are :

 

shares (equities),

government bonds (gilts),

corporate bonds and fixed interest securities,

commodities such as gold and silver,

property and finally,

cash.

Furthermore, equities can be divided into several sub-categories - large cap., mid cap and smaller companies, emerging markets, UK based or global.

Diversification by asset class and geography is one of the best forms of risk management.

As can be seen from Ben Carlson’s asset quilt, the fortunes of the various assets vary from year to year and it is impossible to determine which will do well in advance. Therefore, holding a diverse mix rather than just one or two classes in your allocation strategy means you capture an average from all parts of the spectrum.


A good asset allocation is not so much about maximising returns, but more about building a robust boat that will ride out the stormy waters and get you from A to B.

Risk Profile & Volatility

When first starting out on the investing journey, I believe one of the least understood aspects is probably the need for every investor to understand their unique emotional make up and ability to withstand the volatility of the markets and then to match this to the most appropriate allocation of assets taking into account time horizon.

Equities are probably the most volatile class but over the long term should provide the better returns. However, I suggest most people are not prepared to see a large percentage of their wealth wiped out over the course of a single month (or even week!) so it is usually a good strategy to hold a diverse mix of assets to reduce this volatility and therefore stand a better chance of riding out the inevitable storms that come along from time to time.

Successful investing is all about the long term so it is vitally important to be able to ‘stay in the game’ for many years. It is therefore important at the start of the process to find an investment process and strategy that meshes well with your personality and temperament.

This is where asset allocation comes into play. As we have seen over the past few weeks, some assets such as equities and commodities are far more volatile than other more stable assets such as government bonds (gilts). The FTSE 100 fell by over 10% yesterday, its biggest one-day fall since the crash of October 1987. Individual share holdings are probably the most volatile. For example shares in Shell Oil and BP have both fallen in excess of 40% over just the past month.

 

One month chart for Shell and BP
(click to enlarge)

Investors who invest in 100% equities are likely to get the higher returns over the longer periods BUT are more likely to throw in the towel when their portfolio loses 20% of its value in the blink of an eye…and go on to lose a further 25% over the following year.

In 2003, I came very close to giving up on my investing. My stellar gains from the dotcom period leading up to March 2000 were quickly eroded as the markets fell over the following 3 years. 2001 saw the 9/11 attack on the World Trade Centre, the All Share index fell 15% and the technology index fell by over 40%. This was the worst period for equities since the falls of 1973/74 when there was the oil crisis, coal miners taking on the Heath government and the ensuing 3-day week. The following year, the All Share index fell a further 25%!

With hindsight it was clear I should have sold my investments in early 2000 and repurchased in 2003 but timing these events is almost impossible to achieve. It was probably during this period when I was predominantly invested in equities, that I began to understand the importance of a sensible allocation of assets.

It will therefore be a good idea to have a robust strategy which takes into account our emotional traits and behavioural biases. The journey needs to be planned using a number of sound stepping stones and the first of these will be some attention to asset allocation.

Selecting a plan which contains a sensible mix of equities, bonds and possibly property and then being confident this mix can continue through periods of volatility and market downturns, such as we are experiencing at present, is key to a good outcome longer term.

Some Options

A classic allocation is 60% equities and 40% bonds but there is no perfect solution - everyone will be unique in their tolerance to volatility.  There is probably no such thing as a perfect asset allocation - each person should decide on the best mix, and of course, the mix between different classes of asset can, and probably should, vary over time. As you get older, the time horizon will obviously shorten so many will be looking to reduce equity and increase bonds.

One rule of thumb is to hold the same percentage of bonds as your age - so at age 30 years, it would be 70% equities and 30% bonds. At age 60 years, 40% equities and 60% bonds etc.

Tim Hale, author of “Smarter Investing” suggests 4% in equities for each year you intend to be investing - the remainder in bonds. I would go along with this suggestion but maybe for those of a more cautious disposition who require a more conservative allocation, reduce it to 2.5% or 3% for each year.

Another popular choice is the Harry Browne Permanent Portfolio allocation - 25% equities, 25% gilts, 25% gold and 25% cash. The portfolio is rebalanced once per year to restore any imbalance that has arisen as one asset class does better than another.

Personally, I’m not a big fan of gold, but I can understand why some people will hold a significant percentage in their portfolio as a hedge against currency devaluation. Others regard it as the ultimate safe haven in times of extreme uncertainty such as wars.

One of the benefits of spreading your investments across a number of different asset classes is the reduction of volatility. If you are invested 100% in equities and there is a sudden downturn in the markets, you could easily lose 20% or 30% of the value of your portfolio in a very short period of time - witness late 2008! In May, the FTSE was 6,300 - 6 months later the index had slumped 40% (2,500 points) to 3,800 by November. However, if your investments are mixed between equities, gilts and other fixed interest securities, it is more likely the loss will be more like 10% or 15% which should make it a little easier to ride out the storm.

Whatever allocation you may decide is right for your investment approach, the main point is that you have addressed the issue. Also, I wouldn’t get too bogged down with 2% or 3% in this class and 4% in another - a broad brush is going to do the job and will be easier to manage and rebalance.

Many private investors start off with good intentions, but get sidetracked by the latest trend - with me it was technology shares in the late 1990s and currently fossil-free investments - but it could be smaller companies, emerging markets, commodities and so on, ending up with a dogs dinner of a portfolio.

Work Out Your Mix

First of all, it will to some extent depend on your timeframe - the longer the period, the more sense it will make to have a larger percentage of equities in the mix.

Some people are not very good at assessing the probability of a good outcome - they have unrealistic expectations of what they want to achieve for their level of risk and/or competence. They are sucked in by media stories or discussion boards - time and time again, we read about small investors piling into equities when the markets are near the top and just as quickly become disillusioned when the markets pull back as they always do.

As I say, there are no once-size-fits-all allocation - each will need to settle on their own mix. Of course, when just starting out, its very difficult to know just how you might react to a market correction of 15% or 20%. In his book ‘Investing Demystified’ Lars Kroijer suggests that if investors react badly to market falls, then reduce portfolio equity exposure by 10% - keep doing this until you feel comfortable.

Rebalancing

If I were in my 20s or 30s, I could well decide to choose 100% equities, after all, they are the most likely to provide the best return over the longer period. This is asset allocation - its just that I have chosen to allocate 100% to equities. The ride is likely to be volatile but may be OK for those with a strong constitution who are prepared for many ups and downs along the investing journey. Obviously there will be no need to rebalance.

Say I choose a portfolio of 50% global equities and 50% UK gilts  - and say at the end of the year equities have done very well and have increased to 60 % of the total portfolio value. This would mean the gilts now represent only 40%. The idea of rebalancing is to restore the original balance of 50:50, therefore I sell 10% of my equities and reinvest the proceeds into gilts. The overall value of the portfolio has increased but the original allocation percentages are always restored at regular intervals.

I am selling those assets which have appreciated in value, and then buying those that have either lagged or depreciated - it seems a little counterintuitive. If we're in a bull market and equities are going up, you have to sell some equities to buy bonds. It could be very emotionally difficult to do - equities may well continue rising for another year or two -  so I need to be disciplined and try to remove that emotion from the process.

The only sensible reason to do this is because of the investing principle known as reversion to mean. Whilst many forms of investments, including equities, can trade above or below their long term average - often for surprisingly lengthy periods - in the long term, they always move back in line with that average sooner or later.

It's always handy to maintain some cash on the sidelines to take advantage of the large dips when equities can become oversold due to market panic and stocks can be picked up at bargain prices.

To Sum Up

In recent times I have been moving my portfolio away from the balanced globally diverse index funds as I wish to avoid holding fossil fuel companies and the big banks which finance their activities. I have been building my own 'green' portfolio of mainly equities however this was with the full understanding that my portfolio would become more volatile. I have been bringing my investments into line with my values and I have been prepared to accept this trade-off for the knowledge that I am no longer a part-owner of companies that are failing to respond to our climate emergency.

I believe the effects of the current pandemic will take some time to resolve and whilst the sell-off is dramatic, I expect the markets will adjust and recover over time. However, when all is said and done, the “best” strategy for you is the one that you understand, feel comfortable with and importantly, can stick with in good times and bad.

Have a robust investing plan

Be sure the plan takes account of personality

Diversify by asset class and geography

Be patient, stay in the game and keep it simple

Feel free to comment below on your own asset allocation and how you ride out the market storms like we are in at present.

National Grid - Portfolio Addition

Everyone will be familiar with the National Grid. They are responsible for getting our energy from where it's made to where it's needed and not only in the UK but also in the US. This is a large FTSE 100 company with a market cap. of £31bn. The company is vital for keeping the lights on and millions of homes and businesses heated.

Obviously the company is tightly regulated and in return for spending billions on maintaining and upgrading our infrastructure, the regulator allows NG to make a reasonable profit. The revenues are fairly predictable and low cost of borrowing underpins the company's ability to pay a generous dividend to shareholder. For the current full year this should be in the region of 48p which makes a yield of 5.4% at my purchase price of 875p.

This has been on my watchlist for some time but I wanted to hold back until the political situation was clear as Corbyn had pledged to nationalise the company if he were to get into No. 10.

Obviously the shares will be attractive to seekers of income as returns from cash deposits remain very low and are likely to remain so with the Bank of England reducing rates this week. However, what interests me is their commitment to tackling climate change and the central role they play in the transition to net zero emissions by 2050.

Climate

NG are one of only 11 UK-listed companies awarded an A rating in the latest 2019 CDP ratings (others I hold on the list include Air Liquide, Unilever and Orsted).

Here are some of the initiatives National Grid are involved in to tackle climate change:

*They are rolling out a network of interconnectors - undersea cables - to exchange electricity with other European countries. By 2030 this will provide capacity for 8 million homes to use 90% zero carbon energy.

*They have plans to initiate a network of ultra-fast EV charging points throughout the motorway services to facilitate the take-up of electric vehicles.

*Looking at the feasibility of switching from natural gas to hydrogen throughout the gas network to make home heating more climate-friendly.

*Exploring lower carbon construction and increasing energy efficiency throughout the business.

*National Grid ESO connecting the world's largest offshore windfarm, Hornsea 1 (constructed by Orsted) and supplying clean green energy to one million homes.

*National Grid ESO are working on plans to operate a zero carbon electricity system by 2025.

In November the company declared a target to achieve net zero emissions by 2050 and are now looking at ways to achieve this ambition. They are also supporting the wider transition to clean energy by publishing their Green Finance Framework to support green financing throughout the group.

The company recently launched its first green bond raising £430m to finance new projects such as connecting wind farms to the grid, clean transport solutions and other sustainable green projects following the guidelines set by the International Capital Markets green bond principles.

Results

The company announced interim results last November (link via company website). 

Underlying profits were up 1% to £1.3bn with good operational progress in both the UK and US. In July 2019, National Grid completed the acquisition of Geronimo, a leading developer of wind and solar generation based in Minneapolis in the US. National Grid also entered into a partnership with Washington State Investment Board to own 379MW of solar and wind generation projects developed by Geronimo, which have long-term power purchase agreements in place. These investments represent another step in National Grid's commitment to decarbonisation, bringing an exciting pipeline of solar and wind generation projects to the Group.

Results for the full year to end March 2020 should be available in mid May.

12m share price (click to enlarge)

So, another FTSE 100 company joins Unilever and SSE in the growing green portfolio which takes my number of stand-alone companies up to 11 and representing just under 50% of the total holdings. I am hoping these larger companies will add more stability to the portfolio compared to just holding the smaller hydrogen plays.

Obviously the markets has been volatile over recent weeks. I believe this current situation will be temporary and could well be over the worst by May so it offers the opportunity to pick up a few bargains and NG is currently 18% below its high point of £10.67 in mid February. However, I am not a good timer of my purchases in these situations as the past couple of weeks has demonstrated and there may well be better bargains on offer next week!

More on this following the final results.

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!

AFC Energy - Full Year Results

AFC Energy (AFC.L) is a small company listed on the AIM market. However it is one of the market leaders in the hydrogen revolution as we transition from fossil fuels to clean energy. Hydrogen is regarded as a key element in the governments announcement to reach net zero carbon emissions by 2050. The UK will host the COP 26 conference in 2020.

The shares were first added to my green portfolio last September and topped up in December - from 5p up to 27p then down to 12p and up 36p then down to 22p... it's been a rollercoaster ride to say the least!

Results

Last week the company released results for the full year to end October 2019 (link via Investegate).

Over the 12m period losses have narrowed to £3.6m (£5m 2018)

Adam Bond, CEO of AFC Energy, commented: "The past twelve months has seen a clear and ever-growing momentum behind the role of hydrogen as a means of decarbonising the UK's current and future energy mix.  With the successes and achievements delivered by AFC Energy over these same twelve months, we are well positioned to capitalise on this growth market, particularly in support of the transition away from diesel engines in both motive and stationary applications towards clean hydrogen-based alternatives.

The premium priced power achievable in both off-grid and convenience based rapid EV charging present market deployment opportunities as recently validated through feedback received following the Company's EV charger demonstration roadshow throughout the UK earlier this month. 

The next twelve months will see a concerted effort focussed on the sale and deployment of fuel cell systems into these key markets alongside growth in resources to deliver scaled up manufacturing capacity and also sales and commercial coverage of our key targets.  We have the opportunity for clear first mover advantage in the EV charging market in particular and through the much-appreciated efforts of our employees and partners, look forwards to delivering on our commitments to support the UK's and international efforts towards a net zero society"

Share Price past 6 months  (click to enlarge)

The government have recently brought forward the date for phasing out petrol and diesel engine vehicles from 2040 to 2035 and this should strengthen the demand and urgency for alternatives such as battery EVs and hydrogen fuel cell powered vehicles. It will take some time to upgrade the National Grid network and increase capacity so AFC's EV charger should help to bridge the transition. They have many applications - charging hubs for taxis, powering trains, local councils, motorway charging points, fleet charging as well as domestic vehicles.

It is hoped that over the coming year some of this potential can translate into contracts for delivery of the fuel cell systems into the market. This is still a relatively small company - market cap. £95m - operating in a niche but growing market so I expect the share price to be volatile, rising sharply or falling according to market news. 

...a critical piece of the net zero jigsaw

My holding has increased four-fold since purchase last September however in the past month I have taken some of the profits to fund other purchases such as Ceres Power so AFC is still a relatively small percentage of the portfolio. I am hopeful the chancellor will confirm the government's support for renewables and hydrogen as part of the transition to net zero emissions in the budget on Wednesday.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

Unilever - Portfolio Addition

Unilever is one of the world's leading suppliers of fast-moving consumer goods. 

Some well-known brands include Marmite, PG tips, Pot Noodle, Ben & Jerry's Ice Cream, Colman's Mustard, Magnum Ice Cream, Hellmann's Mayonnaise, Domestos Bleach, Dove soaps, Sure Deodorant, VO5 Shampoo, Vaseline and Brylcreem.

The company states that more than 2 billion consumers worldwide use a Unilever product every day.

This was part of my income portfolio when I first started this blog back in 2013. It was sold in 2016 when I was moving my portfolio away from individual shares and more towards global index funds. I subsequently repurchased the following year just before the bid from Kraft-Heinz and then sold again the following year. What goes around comes around and, like SSE, with my 'green hat' on, I have taken another look at Unilever as it topped the climate sustainability table in the CDP analysis.

CDP

CDP is a not-for-profit charity and comprehensive sustainablity reporting platform which covers around one third of global listed companies. They monitor to what extent these companies have incorporated sustainability into their strategy and business models and rank them according to a range of criteria.

Out of the 8,400 companies disclosing for 2019, just 179 achieved an A-list ranking for climate change and top of this list was Unilever.

Climate Strategy

Unilever say they want low-carbon to become the new normal and are taking action to reduce greenhouse gas emission throughout their value chain. The company is aiming to become carbon positive by 2030 which means 100% of the energy used will come from renewables. In fact they plan to generate more energy than they use so the excess will become available to the communities where they operate throughout the world.

In addition to renewable energy, the company have taken action to eliminate deforestation from the supply chain, introduced internal carbon pricing mechanisms to drive the changes and design products with lower carbon footprints. The company believes it will be essential to put a price on carbon as a fundamental part of the global response to climate change if the world is to meet its carbon emissions reduction targets set out in the Paris Agreement.

I was Interested to see that the company have just started a government funded pilot scheme at their Port Sunlight factory which aims to demonstrate how hydrogen can be used as an alternative to natural gas at an industrial scale.

I imagine the easier part of the transition to a climate positive company will already have been achieved and challenges will remain over the next decade. However, it is encouraging to see such a large multinational company getting to grips with what needs to be done. This is the main reason for the company being added to my green portfolio but also the large companies like Unilever, Air Liquide and SSE will hopefully bring a little more balance and stability to counter some of the more volatile smaller companies.

Results

The company announced full year results for 2019 in January (link via Investegate). Sales rose by 2.9%, slightly below target whilst earning rose by 5.8%. Dividends are paid in Euros which makes the income slightly unpredictable as it is subject to EUR:GBP exchange rates however the dividend for the past year was £1.43 which translates to a yield of 3.3% at my purchase price of £43.40.

Dividends are paid quarterly and the next announcement for Q1 will be mid April and I expect a 6% uplift to 0.435 EUR.

3 Yr Share Price (click to enlarge)

Obviously the share price has been a little volatile over recent weeks due to the concerns over coronavirus but hopefully this is a short term crisis and the markets will settle back to normal in the coming weeks.

So, another addition to my portfolio which takes the stand-alone shares to 10 in total which represent around 45% of my 'green' portfolio.

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!

Greencoat UK Wind - Full Year Results

UKW is one of the largest renewable infrastructure trust with a market value in excess of £2.2bn and a constituent of the FTSE 250. The trust has a fairly simple business model operating a portfolio of 35 onshore and offshore wind farms throughout the UK. The trust was launched in 2013 and over this period, returns for investors including dividends have just about doubled making it one of the best performing trust in the renewables infrastructure sector. Total returns over the past 5 years compare well with other holdings... UKW 80% v TRIG 77% v BSIF 81%.

The trust pays quarterly dividends and aims to maintain payments at least in line with RPI inflation. The company's target is for a total shareholder return including dividends of 8% to 9% per year which it has exceeded since launch.

Results

UKW has recently announced results for 2019 (link via Investegate). 

Revenues increased to £128m (£117 in 2018) and generating 2,385 GWh of clean electricity which represents an increase of 19% on the previous year. Total return for the year (dividend + share price appreciation) was 25.4% which includes dividends of 6.94p paid quarterly. Since launch in 2013, the return has been 115% which equates to an average annualised return of 11.5%.

Dividends should keep pace with inflation and the target for the coming year is 7.1p which gives a forward yield of 5.0% based on the current share price of 140p.

In December, the company agreed to purchase two new wind farms in Scotland for a total of £104m. Windy Rig (43.2MW) and Twentyshilling (37.8MW) are both subsidy free projects under construction and should be operational in 2021.

UKW raised a total of £506m over the year from two oversubscribed placings which has been deployed in the new acquisitions.

Windy Rig, SW Scotland

Commenting on the results, Tim Ingram, Chairman of Greencoat UK Wind, said:

"2019 represented another significant year of growth for Greencoat UK Wind. During the year, we made nearly £600 million of investments and raised over £500 million of new equity. 

Net cash generation remained strong, leading to a robust dividend cover of 1.4x despite portfolio generation and power prices being below budget for the period. For 2020, the Company is targeting a dividend of 7.1 pence per share, increased for the seventh consecutive year in line with RPI.

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 .  

We were pleased to announce the acquisition of Slieve Divena II last week and our pipeline of acquisition opportunities remains very healthy."

UKW & TRIG -v- FTSE All Share Index Feb 2020
(click to enlarge)

UKW accounts for around 7% of my green portfolio and is one of several renewable energy infrastructure trusts which make up just over half of the portfolio. The stormy weather has coincided with the stormy global markets of the past week or so resulting from the spread of coronavirus. Last week the markets were in freefall losing around 10% however the renewables have held up well and were down around 2% or 3% so must be classed as defensive.

I expect there will be further deals to be done over the coming year and likely further issue(s) of new shares offered to existing shareholders at a discount so I may well be adding to my current holding. Under the renewables obligation certificate (ROC) arrangements, around half of UKW revenues are effectively guaranteed until 2037 and going forward they will likely take advantage of long term contracts for difference which again fixes the prices of the electricity generated. More homes and businesses receive clean energy whilst more carbon dioxide from thermal fossil fuel generation is displaced and investors receive their relatively safe 5% inflation-proofed income...a win, win all around!

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!