SDCL Energy Efficiency Income Trust (LSE: SEIT)

Last close As at 08/11/2024

GBP0.56

0.30 (0.53%)

Market capitalisation

GBP609m

SDCL Energy Efficiency Income Trust’s objective is to generate an attractive total return for investors, comprising a stable dividend income and capital preservation, with the opportunity for capital growth.

Equity Proposition

SDCL Energy Efficiency Income Trust (SEEIT) is an investment trust listed on the London Stock Exchange that invests exclusively in assets that fall under the energy efficiency arm of the wider energy infrastructure sector. Its projects focus on providing energy and energy efficiency as a decentralised service directly to end users, rather than supplying the broader power grid. SEEIT has a market capitalisation of around £700m and offers investors a unique opportunity to invest in the important, yet sometimes overlooked energy efficiency sector, which is essential to the global push towards net zero carbon emissions.

There are five key reasons why SEEIT represents an exciting investment case:

  1. Energy efficiency. According to the International Energy Agency, energy efficiency, alongside wind and solar, will provide roughly half of the energy-related emissions savings by 2030. SEEIT’s investment manager, Sustainable Development Capital (SDCL), established in 2007, is a specialist firm in this area. With a proven track record in developing and investing in energy efficiency and decentralised energy generation projects, SEEIT is therefore well positioned to combine the manager’s expertise, and the necessity for energy efficiency, while benefiting from the acceleration towards global net zero. 
  2. SEEIT’s investment objective is to generate an attractive total return for investors. This is achieved by capital growth through continued investment in the portfolio, combined with a stable dividend that has grown year-on-year. Dividends have been fully covered by cash flow from the portfolio since inception. 
  3. SEEIT’s large portfolio is highly diversified, containing more than 10 different technologies. It holds assets across the UK, Europe and Asia-Pacific, with its largest weighting in the US, at just over 60%. Its three largest sub-sectors are solar and storage, district energy and combined heat and power. SEEIT invests across the entire development stage spectrum, with roughly 15% of its portfolio (in FY24) in construction and development. Earlier stage investments can bring slightly higher risk but can produce significantly higher rates of return in the long term. 
  4. SEEIT invests in primarily long-term contracted income streams associated with high-quality credit counterparties. This minimises its exposure to energy price downturns and, where exposure exists, SEEIT mitigates it by agreeing contracts for fuel supply or offtake contracts for its energy services. SEEIT has also continued to increase the positive correlation between inflation and its revenue streams.
  5. SEEIT trades at a significant discount to net asset value. This discount, if it were to close, would see investors benefit from significant additional returns. Combined with its attractive dividend yield and relatively low gearing compared to peers, provides an attractive entry point for investors into a uniquely positioned trust in the wider renewable energy space.  

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Equity Analyst

Andrew Keen

MD - Head of Content, Energy & Resources, Industrials

Harry Kilby

Analyst

Key Management

  • Tom Hovanessian

    Investment Director

  • Tony Roper

    Chairman

Share Price Performance

Price Performance
% 1M 3M 12M
Actual (9.3) (11.2) (7.7)
Relative (7.6) (11.0) (16.7)
52 week high/low 69.1p/51.8p

Overview

SDCL Energy Efficiency Income Trust’s (SEEIT’s) interim update (for the six months to 30 September 2024) has highlighted that its operational assets, on a consolidated basis, are performing in line with management’s expectations and that the portfolio is well positioned for growth. SEEIT is actively pursuing additional financing, co-investment and disposal opportunities to support the capital needs of Onyx and EVN, which are growing ahead of budget. Surplus capital will be used to pay down SEEIT’s revolving credit facility (RCF). Management believes SEEIT is on track to deliver its target dividend of 6.32p per share for FY25 (10% current yield), which is fully covered by net operational cash received from investments.

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