Research: Investment Companies
Greencoat Renewables (GRP) recorded positive FY23 results, with continued strong net cash generation of €196.7m (2022: €215m) underpinning a significantly covered dividend of 2.7x (2022: 3.2x). NAV per share (112.1 cents) decreased marginally from the previous year (112.4 cents) due to a reduction in short-term power prices and an increase in the portfolio discount rate, both largely offset by strong cash generation. GRP is strongly cash generative (reflecting the quality of its assets) and this cash generation is enabling the company’s continued expansion, with five transactions completed in 2023 and two expected in 2024.
Greencoat Renewables |
Acquisitions generating more green
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Investment trusts |
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25 March 2024 |
Business description
Bull
Bear
Analysts
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Greencoat Renewables (GRP) recorded positive FY23 results, with continued strong net cash generation of €196.7m (2022: €215m) underpinning a significantly covered dividend of 2.7x (2022: 3.2x). NAV per share (112.1 cents) decreased marginally from the previous year (112.4 cents) due to a reduction in short-term power prices and an increase in the portfolio discount rate, both largely offset by strong cash generation. GRP is strongly cash generative (reflecting the quality of its assets) and this cash generation is enabling the company’s continued expansion, with five transactions completed in 2023 and two expected in 2024.
Investment activity
Throughout FY23, GRP continued to strengthen its portfolio via the acquisition of four new assets through five transactions for a total of €524.3m, resulting in a 323MW increase in its total capacity to 1.5GW. These acquisitions consisted of an initial 22.5% and subsequent 15.7% share of the 288MW Butendiek offshore wind farm in the German North Sea, the 38MW Cloghan onshore wind farm located in Ireland, the 50MW Torrubia solar farm in Spain and the 134MW Erstrask North wind farm in Sweden. The increase in portfolio size and cash generation, further enhanced GRP’s ability to fund its investment activity through operating cash flows, with 20% of the total deployed capital throughout FY23 being funded internally. GRP expects to add two additional acquisitions in 2024, through previously committed forward sales agreements (taking its total capacity to 1.6GW), as well as securing exclusive access to 50% of a 1GW+ pipeline of onshore wind projects in Ireland by entering into a long-term strategic framework agreement with FuturEnergy.
Operational performance
Despite lower-than-expected wind resource (resulting in total portfolio generation 9% below budget for the year), GRP delivered strong cash flows of €196.7m leading to a significant dividend cover of 2.7x on a gross basis. GRP’s dividend for FY23 was 6.42 cents per share and management guided a target dividend of 6.74 cents per share for FY24, which represents a 5% y-o-y increase (and a 7.7% yield). GRP signed its first long-term power price agreement (PPA) with a large multinational company for 62.5% of the output of Butendiek. This PPA is one of the largest in Germany and paved the way to the signing of a second PPA for 18% of the output of Butendiek. At 2023 year-end, c 75% of revenues were contracted through to 2028 with c 69% being inflation linked, providing a high degree of income security and protection in a declining power price, inflationary environment.
Outlook
GPR’s gross gearing increased from 42% to 51.2% reflecting its investment activity throughout 2023 (60% of GAV cap). The portfolio’s ability to generate a high level of sustainable cash flow, has increased the company’s range of capital allocation decisions for 2024, likely favouring debt repayments and share buybacks if it continues to trade at a meaningful discount to NAV.
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Research: Investment Companies
On 14 March, the boards of Henderson European Focus Trust (HEFT) and Henderson EuroTrust (HNE) announced the proposed merger of the two companies to form Henderson European Trust. The resulting enlarged fund will be managed by Janus Henderson Investors’ (JHI’s) European equities team. There will be two co-managers, Tom O’Hara (currently co-lead manager of HEFT) and Jamie Ross (currently lead manager of HNE). While each co-manager has their own expertise, they share a fundamental investment philosophy and are expected to contribute their best ideas to the fund. If successful, the merger is expected to be completed by end June 2024.