TRIG - Results for 2020

The investment trust was launched in 2013 and gives investors an opportunity to tap into the UK and 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 assets of £2.2bn. The shares were first purchased for my portfolio in 2019 and topped up with discounted shares from the share issue last March at the price of 114p.

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 8% 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.

Results

Last week the company released results for full year 2020 (link via Investegate).

Profits came in at £100m (2019 £162m) with earning per share of 5.9p (11.4p).

Net assets per share for the period was 115.3p compared to 115p a year earlier.

The board have announced a final dividend of 1.69p for the end of March making a total of 6.76p for the year which provides a yield of 5.3% based on the current share price of 127p. However no increase is planned for the coming year which is not really a surprise.

The shares still trade at a 13% premium to net assets having reached 20% last year.

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 brought forward the date for all new cars to be emission free from 2035 to 2030. In a decade we could see 35 million pure electric cars on our roads which will require lots of clean energy.

One year share price (click to enlarge)

In addition, gas which heats 90% of our homes is due to be phased out for all new house build 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.

However, as we have seen this past year, this does not necessarily translate into higher power prices which is an important aspect of valuing these renewable energy infrastructure trusts. TRIG have been caught out this past year having failed to accurately forecast wholesale prices. As a result NAV has decreased and the trust has taken a hit to the tune of £137m. Power prices are one of the key risks faced by the trust. This post by Finumus last May outlines some of the potential downside to renewable infrastructure investments and inflated long-term power prices.

The higher weighting in my green portfolio proved to be a drag on returns in 2020. Sure they provide a nice dividend which is relatively secure (unlike the oil companies) but as I no longer require an income from my portfolio I decided to slim down my holdings this year and focus more on green growth. Therefore my holding in TRIG has been reduced from 10% to currently just 2%.

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!

NIBE - 2020 Full Year Results

NIBE is a heating technology company based in Sweden. It has three basic business areas - Element, Climate Solutions and Stoves. Climate is the fastest growing segment and over the past year accounted for around 2/3rds of sales and 74% of the groups profits. Clearly climate change is rising to the top of the political agenda on a global basis and I believe the company are well positioned to take advantage of the opportunities this provides - especially in the field of heat pumps which will become an option for heating our homes as an alternative to fossil fuels such as natural gas. It is one of the leading companies in Europe and North America in the area of sustainable solutions for domestic heating.

The company has been trading for over 70 years and has a long-standing ethos of working on sustainable solutions and energy efficiency. It was floated on the stockmarket in 1997 and has grown sales at an average of 18% p.a. over this period with an ever increasing global presence.

Heat pumps and related technology are tried and tested solutions for space heating in Scandinavian countries but relatively unknown in many parts of the world. Many countries, including the UK are actively looking at ways to decarbonise the domestic heating sector which accounts for around 40% of carbon emissions.

Climate

Climate change is the greatest challenge of our time. We need to reduce greenhouse gas emissions by at least 60% by 2030 compared to 2010 levels to keep on track for net zero by 2050. All of the products offered by the company are designed to make a significant contribution to tackle climate change. They offer sustainable, energy-efficient solutions such as heat pumps that reduce energy consumption by up to 80% and reduce GHG emissions in all types of buildings both domestic and commercial.

Last year, the EU announced their 'Green Deal' and proposals to target net zero carbon emissions by 2050. A central part of the strategy will be the goal to decarbonise the energy sector and prioritise energy efficiency and transition to a power sector based on renewable energy.

Heat Pumps

The largest sector for the group is climate solutions and within this sector, the largest element is heat pumps. These pumps extract the stored energy from the sun contained in the soil or air and transfer this energy indoors to provide indoor heat as well as hot water. The two main types of heat pump are ground source where pipes are laid under the soil and air source where heat is extracted directly from the air.

Air Source Heat Pump

In the UK (and much of Europe) around 90% of our homes are heated by gas central heating. However we have legislated for net zero emissions by 2050 and will need to find alternative ways to heat the nations homes as gas (fossil fuel) will not be an option. We have already ruled out gas central heating for all new homes built after 2024 so electric heat pumps (as well as green hydrogen and battery storage) should play a big part in the huge transition of our energy use over the coming decade and beyond.

The UK still offers financial incentives to install heat pumps via its Renewable Heat Incentive. This covers a period of 7 years from installation and will provide payments for a typical home of £1,300 p.a for air source heat pump and a higher figure of £3,300 p.a. for a ground source heat pump. In addition there will be a significant saving on heating bills. There is also the Green Homes Grant which offers two thirds of the cost towards installation of heat pumps and these incentives will go a long way towards the costs of installing a heat pump system which range between £6,000 for air source and maybe up to £20,000 for a ground source heat pump. The schemes currently runs until March 2022 but it is hoped this will be extended.

Results for 2020

Despite a disruptive and stressful 12 months due to Covid, the decentralised management structure has coped well with fluctuating demand which has translated to relatively stable growth. There have also been several acquisitions which have contributed to profitability.

Combined sales increased by 7.1% to SEK 27.1bn (2019 25.3bn) and profits of SEK 3.6bn (2.8bn) an increase of 28%. The company pays dividends which increased by 7.7% this year to SEK 1.55 per share (obviously subject to FX considerations for UK shareholders!).

Here's a link to the results pdf from the company website

NIBE 1 Yr Share Price

The share price has been a little choppy due to Covid over the past few months but recovered momentum from a low point of SEK 120 last March to hit an all-time high of SEK 295 last month.

Obviously the demand for solutions which support the switch from fossil fuels to renewables will grow and grow. As the market grows so prices fall which in turn creates greater demand. Companies like NIBE who have a clear commitment to sustainable solutions will be the likely beneficiaries of the transition to a new way of doing things. This is why I decided to add this company to my green portfolio last June.

The shares were added to my green portfolio at the price of SEK 201 last year and I have just topped up in my ISA at SEK 288 after digesting these results. The combined holding now accounts for around 7% of my green portfolio holdings.

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 individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!

L&G Hydrogen Economy ETF

It's around 18 months since I purchased my first small hydrogen play - ITM Power after reading about a joint project with Orsted. I put together a few thoughts on the potential for hydrogen in this article from January 2020.

I guess many will know that almost any company involved in hydrogen had a stellar year in 2020 and I am hoping this will continue for many years to come. Last July the EU announced its plans for 40GW of renewable hydrogen by 2030. I will be interested to see what the plans are in the US under the new Biden administration but certainly hydrogen will play a big part in the transition.

Decarbonising the global economy as it moves away from oil & gas will mean a lot of electrolysers to make the green hydrogen and also a lot of solar and wind to provide  the energy to make it work.

Many Applications for Green Hydrogen

That is why I have rejigged my portfolio into the companies working in these areas.

Clean hydrogen - Nel Hydrogen, McPhy, Ceres Power, ITM Power, Ballard Power, Plug Power, Orsted and Powercell.

Solar - Enphase, Sunrun and SolarEdge.

Wind - Orsted, Vestas Wind as well as my iShares Clean Energy ETF

The New Hydrogen Fund

Legal & General offer several thematic funds such as clean water and clean energy. I am pleased to see that they have now expanded the offering with a new ETF which focuses on the emerging new hydrogen economy - an area I have been looking at for the past year or so with my green portfolio.

The L&G Hydrogen Economy ETF (HTWO) and (HTWG) launched last week and is listed on all the main European exchanges including London. It has charges of 0.49%.

This is an index fund which will track the Solactive Hydrogen Economy Index (latest factsheet) which currently holds 28 companies from around the globe which derive a significant proportion of revenues from hydrogen. The areas covered include clean hydrogen producers, fuel cell technology, transport, industrial and utility companies and others in the hydrogen supply chain.

"At LGIM, we believe in giving investors targeted, specific exposure to the full value chain of low-carbon solutions across the power production, storage and distribution energy cycles. The launch of the L&G Hydrogen Economy UCITS ETF expands on our market-leading thematic range and underscores our commitment to equipping investors with the portfolio tools they need to gain access to the key themes that will help us transition to a more sustainable world".

James Crossley, Head of UK Retail Sales at LGIM

Naturally most of my hydrogen holdings are included but I will be adding this new fund to my green portfolio in the coming week as a benchmark. Obviously it offers a useful collective investment vehicle for those who want to add the emerging hydrogen focus to their portfolio.

18/2/21 Update - Shares purchased in my ISA this morning @ 707p ($9.75)

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!

Vestas Wind - 2020 Full Year Results

Vestas is one of the world's leading players in wind turbines - it designs, makes, installs and services both onshore and offshore turbines and holds the record of providing more turbines throughout 80 countries than any other company. The core of the business is providing sustainable, clean and affordable energy to people all around the world.

The company's aim is to become carbon neutral by 2030 and to produce zero-waste wind turbines by 2040.

Clean energy has been the fastest growing sector of the energy market in 2020 with a record 200GW of renewables coming onstream according to the IEA.

Vestas are the global leader in onshore wind - over 120 GW installed and also onshore servicing. They are #2 in offshore wind (behind Orsted) with 5 GW installed and plans to double this by 2022. It's market cap. is currently 250bn DKK (approx £30bn).

The shares were added to my ISA portfolio in October 2019 at the price of 535 DKK.

Results

The company have this week released results for the full year to end December 2020 (link via company website pdf).

It's been a tough year due to Covid so it's an achievement to have increased annual revenues by 22% to €14.8bn. However profits were down 25% to €750m due to supply chain challenges resulting from the global pandemic.

The combined order backlog increased from €34bn to €43bn which includes €4bn of offshore turbines and €24bn of servicing contracts. The company anticipates revenues of €16 to 17bn for the coming year with increased profit margin of 6 - 8%.

The company are moving into project development and in December they agreed a deal with Copenhagen Infrastructure and will invest €500m with a view to developing new projects and new markets across the world over the coming decade. As the wind sector becomes more competitive and margins fall, they see this as a way of capturing more value from future projects. CIP has over €14bn of assets under management and is a leading investor in clean energy.

Vestas is also moving to scale up its offshore operations and agreed to acquire the share of its joint venture with Mitsubishi Heavy Industries in the belief that offshore is likely to quadruple over the coming decade.

They propose a 6.6% hike in the dividend to 8.45 DKK which equates to just over 0.7% at current share price.

Group CEO, Henrik Andersen said : “Renewable energy took another large step forward in 2020 by improving its competitiveness, showing great resilience during a global pandemic, and proving renewables can serve as the backbone of our societies in the future. In 2020, Vestas continued to play a key role in the fight against climate crisis, and we met our revised guidance on all parameters, leading the industry on revenue, order intake, and profitability despite COVID-19 affecting all parts of our value chain.

In this environment, we achieved more than 17 GW of deliveries and bolstered our total order backlog to an all-time high of EUR 43bn through strong order intake, service growth, and the re-integration of offshore wind. Service performance was once again very strong with a 10 percent increase in revenue year-over-year and record EBIT margin of 28 percent. Group profitability was negatively impacted by warranty provisions and increased execution costs. In addition to acquiring MHI Vestas Offshore Wind, Vestas also made strategic strides to increase our presence across the value chain, including establishing a dedicated development business unit, launching the largest turbine in offshore wind and underlining our leading position within sustainability by reducing our own carbon emissions by 33 percent and reaching 186m tonnes of CO₂ avoided on a yearly basis through our installed base. To position Vestas strongly for future growth and profitability, our focus in 2021 will be to fully integrate offshore and address executional challenges.”

One Year Share Price

The results have received a mixed response with the share price falling 3% to 1228 DKK on Wednesday.

In the US, the new Biden administration has pledged a $2 trillion clean energy transition with the promise of "tens of thousands of wind turbines". In Europe there's the €1 trillion Green Deal and the ambition of a 55% reduction of carbon emissions by 2030.  It is my opinion that we are at the beginning of a renewable energy megatrend which will build over the coming 20 to 30 years as we transition from fossil fuels to renewable energy. I fully expect Vestas to continue to benefit over the long term

As with Orsted, I am more than happy with my acquisition. In August last year I needed to sell some of my shares to fund my house purchase which completed later in the year but have recently repurchased to top up my holding which currently stands at 7% 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... investing in individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!

Orsted - 2020 Full Year Results

This energy company based in Denmark is a global leader in offshore wind with around 30% of global capacity. It also operates onshore wind, solar, energy storage and bioenergy plants. It has ambitions to become the world's first green energy supermajor to rival the traditional oil & gas giants such as Exxon, Shell and BP and now has operations in Denmark, UK, Germany, Holland, US, Japan and also Taiwan.

The company's vision is to see a world run entirely on renewable energy.

Orsted were ranked the top most sustainable energy company in the Corporate Knights 2021 Global 100 Index. The company has pledged to become carbon neutral by 2025 making it the first major energy company to reach net zero emissions in energy generation.

The shares were added to my portfolio in April 2019 at 495 DKK and have advanced nicely over the past 21 months to currently 1,175 DKK - an increase of 130% plus dividends.

Renewable energy is very much in the ascendancy due to concerns about our climate emergency. It is estimated the global wind energy sector will attract investment of $1 trillion over the next 10 years as the world makes the transition from fossil fuels to low-carbon clean energy.

Results

The company has today announced results for the year to Dec 2020 (pdf link via Company website). Operating earnings increased to DKK 18.1bn, an increase of 4% on 2019 and ahead of expectations and despite all the challenges posed by Covid. Net profits of 16.7bn were boosted by DKK 10bn profits from the disposal of its power distribution, residential and city lights business.

Several new onshore and offshore wind farms have been commissioned over the past year including Hornsea 1 in the North Sea and Borssele 1&2 off the Dutch coast. The 1.4GW Hornsea 2 is due for completion in 2022 and Hornsea 3 has just been given the green light by the UK government.

There has been a move into onshore wind and solar PV in the US. Also there has been significant progress on green hydrogen projects with funding secured for projects in the UK, EU and Germany. The most recent is a partnership with BP for a 50MW electrolyser at their Lingen refinery with a long-term ambition of building capacity to over 500MW. This would entirely convert  production from fossil fuels to clean hydrogen.

For the coming year, new investment into renewable projects is expected to be DKK 32 to 34bn with more focus on solar PV and onshore developments and will no doubt receive a boost from the new climate-friendly Biden administration in the US.

The company propose a dividend for the year of DKK 11.5, an increase of 9% on 2019 which provides a yield of around 1.0% based on the current price.

The company is on track to be carbon-free by 2025 and have plans for the sale of the remaining gas and fossil-based power operations which make up around 10% of the business. They have announced plans to phase out petrol/diesel cars and replace them will fully electric by 2025. The company has a strong commitment to the Paris Agreement and the UN Sustainable Development Goals.

Orsted One Year Share Price
(click to enlarge)

Obviously I am happy with progress so far and I am hoping for much more. Many governments throughout the world have embraced the need to move to net zero emissions including China, Japan and the US under Biden. Whether we pass on a habitable planet to our children and grandchildren will be determined by our action or lack of it over the coming decade. Climate science suggests limiting warming to 1.5C to reduce the risks of triggering irreversible tipping points in our global ecosystem.

Orsted is one of the large companies that is leading the way in the transition to a more sustainable world. Hopefully some of the oil majors will follow their lead...sooner rather than later would be good.

I have today decided to top up my holding and Orsted now accounts for around 10% 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... investing in individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!