Monday, 27 February 2023

Greencoat UK Wind - Full Yr Results

UKW is one of the largest renewable infrastructure trust with a market value in excess of £3.5bn 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 generating 1.6GW of clean electricity. The trust was launched in 2013 and over this period, returns for investors including dividends have more than doubled making it one of the best performing trust in the renewables infrastructure sector.

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 of 8% to 9% per year which it has exceeded since launch.


UKW recently announced results for the full year to December 2022 (link via Investegate). 

Net assets per share increased 25% from 133.5p to 167p as a result of significantly higher power prices and high inflation combined with very strong cash generation. The NAV figure is reduced by 8p which takes account of impact from the new Electicity Generator Levy.

The portfolio generated 4,362 GWh of clean electricity which was 5% below expectations due to lower than average wind during the second half of the year. Total return for the year (dividend + share price appreciation) was 13.5%. Since launch in 2013, the return has been 153% which equates to an average annualised return of 9.7%.

Dividends should keep pace with inflation and a total of 7.72p per share was paid over the past year. The dividend is linked to the higher RPI which underpins a 13% increase and a target for the coming year of 8.76p giving a forward yield of 5.5% based on the current share price of 157p.

Commenting on the results, Shonaid Jemmett-Page, Chair of Greencoat UK Wind, said:

"2022 was another significant year for the Company, as we continue to build on our well-established track record. Our simple, low risk, and proven strategy has enabled us to increase our dividend once more, and to target a dividend of 8.76p per share for 2023, a 13.4% increase reflecting December's RPI."

"The year represented another significant period of growth, with £1.2 billion invested in high quality assets, increasing our portfolio generating capacity to 1.6GW. This underlines the size and scale that the Group has attained since listing."

She announced that she will be stepping down from the position next year.

UKW has a 12.5% stake in the world's
largest offshore wind farm

I found the Outlook section of the report interesting...

High power prices again drove strong cash generation in 2022 and the Group should continue to benefit from strong cash generation over the next few years through its balanced exposure to power prices. We continue to apply a conservative discount to future power prices, albeit at an appropriately reduced level. The net result has been a material increase in NAV per share.

Assuming a dividend yield of 5 per cent, the 9 per cent total return would be delivered through a combination of dividends (5 per cent) and growth in NAV per share (4 per cent). Given the underlying index linked nature of the portfolio cash flows, both the dividend yield and growth in NAV per share benefit from a high degree of inflation protection. 2022 dividend cover was 3.2x and, in line with the Company's dividend policy, the target dividend for 2023 has been increased by December's RPI to 8.76 pence per share.

We believe that a 9 per cent total return, with inflation protection, should be very attractive to investors in the new higher interest rate environment.

In general, the outlook for the Group is very encouraging, with proven operational and financial performance from the existing portfolio, combined with a healthy pipeline of attractive further investment opportunities.

Obviously this outlook is positive for investors and continues to be very attractive for those seeking income and a hedge against inflation. However it is always subject to the situation in Ukraine and how global power prices and inflation play out over the coming year(s).

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!

According to a recent report from the IEA, the global energy crisis is driving a sharp acceleration in renewable energy and they suggest renewables will become the largest source of global electricity by early 2025.

Here in the UK we are aiming to ramp up offshore wind capacity from 14GW to 50GW by 2030 and hopefully a further 10GW of onshore wind as we target a decarbonised electricity grid by 2035. Labour would go further should they win the next general election with plans to secure clean power by 2030 with a doubling of onshore wind and a quadrupling of offshore wind.

The future certainly looks bright for the likes of UKW and TRIG.

UKW 3 Yr share price/NAV
(click to enlarge)

Similar to TRIG, the shares are now trading at a modest discount to net assets which could well prove to be an attractive purchase opportunity should the share price revert to its more traditional 10% premium over the coming months. UKW accounts for around 12% of my green portfolio and is one of several renewable energy infrastructure trusts which make up just over half of the portfolio. I like the idea of covering my domestic energy bills with the dividend income they generate.

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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