Premier Miton Global Renewables Trust — Potential for real return

Premier Miton Global Renewables Trust (LSE: PMGR)

Last close As at 18/05/2024

GBP1.05

0.50 (0.48%)

Market capitalisation

GBP20m

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Research: Investment Companies

Premier Miton Global Renewables Trust — Potential for real return

Renewable energy investment trusts are out of fashion at present and, in our view, this represents an opportunity for investors. Premier Miton Global Renewables Trusts (PMGR), like all its peers, is now trading at a discount to NAV (14.3%) as its performance has been affected by the underperformance of many of its key public holdings. In our view, short-term energy price weakness and questions over the policy environment are missing the longer-term shift in competitiveness and energy security that consumers are seeking from renewables. We believe the current state of the market presents an attractive entry point for investors.

Written by

Andrew Keen

MD - Head of Content, Energy & Resources, Industrials

Investment Companies

Premier Miton Global Renewables Trust

Company update

Investment trusts
Renewable energy equities

12 October 2023

Price

96p

Market cap

£17.5m

AUM

£37.1m

NAV*

111.6p/share

Discount to NAV*

14.3%

*Including income. As at 10 October 2023.

Yield

7.71%

Ordinary shares in issue

18.2m

ZDP shares in issue

14.2m

Code/ISIN

PMGR/GB0033537902

Primary exchange

LSE

AIC sector

Infrastructure Securities

52-week high/low

166.5p

110.0p

NAV** high/low

190.4p

113.9p

**Including income

Net gearing (as at end August 2023)

39.6%

Fund objective

Premier Miton Global Renewables Trust’s investment objectives are to achieve high income and realise long-term growth in the capital value of its portfolio. It seeks to achieve these by investing principally in the equity and equity-related securities of companies operating primarily in the renewable energy sectors and other sustainable infrastructure investments. The trust is structurally geared via zero dividend preference shares maturing in 2025.

Bull points

Broad exposure to discounted renewables space.

Long-run global shift towards clean power production and energy security.

The only pure-play investment trust focusing on listed renewable energy stocks.

Bear points

Underlying portfolio materially affected by trading at discounts to NAV.

High structural gearing is inflexible and can be detrimental in a falling market.

PMGR is small in size, which limits liquidity to an extent, and hence better suits investors with a long-term investment horizon.

Analysts

Andrew Keen

+44 (0)20 3077 5700

Harry Kilby

+44 (0)20 3077 5724

Premier Miton Global Renewables Trust is a research client of Edison Investment Research Limited

Renewable energy investment trusts are out of fashion at present and, in our view, this represents an opportunity for investors. Premier Miton Global Renewables Trusts (PMGR), like all its peers, is now trading at a discount to NAV (14.3%) as its performance has been affected by the underperformance of many of its key public holdings. In our view, short-term energy price weakness and questions over the policy environment are missing the longer-term shift in competitiveness and energy security that consumers are seeking from renewables. We believe the current state of the market presents an attractive entry point for investors.

Potential for real return

Three-year cumulative performance

Source: Refinitiv, Edison Investment Research. Note: Total returns in sterling, net of dividends. *Benchmark is S&P Global Clean Energy Index; prior to FY21 it was a broad global infrastructure index.

Why PMGR?

Investment trusts, particularly those with long-dated revenue streams such as renewables, have been at the pointy end of the rising interest rate and asset valuation debate. The nominal yields of money market and fixed-income products have attracted investor attention away from investment trusts, where the return premium has not been seen as sufficient to offset the risk. While these products can minimise investor losses in nearer-term periods of market weakness and high inflation, it is a medium-term guarantee of negative real investment returns. In our view, investors will be drawn back to the relatively higher and, in many cases, inflation-linked returns found in many renewables trusts when returns improve and interest rates settle. PMGR has shifted its portfolio’s geographical weighting slightly to best combat the pressure of rising inflation and interest rates, with a 4.1pp increase in European investments and 3.2pp decrease in global investments.

The analyst’s view

PMGR reported good results on the back of high power prices in the six months to June 2023 and this, coupled with the continued growth of its assets, resulted in earnings per ordinary share increasing by 12.3% to 4.43p. The first two quarterly dividends (1.85p each) of FY23 were 5.7% higher than H122. Investor sentiment surrounding the renewable energy sector has weighed on valuations and widened discounts to NAV, negatively affecting PMGR’s holdings. We argue that the monetary flow towards fixed income will not be permanent and the combination of positive real yields and growth in underlying end-use in the renewables sector could present an attractive buying opportunity.

Edison’s take: Renewable energy investment trusts

Investment trusts in the renewable energy space have been competing with fixed-income and money market products for investor attention recently. In a rising rate environment, the nominal yields of these competing products look attractive, and the rising rates have also put upward pressure on the discount rates used in fund asset valuations, putting some downward pressure on NAV calculations.

In our view, the flow of money into fixed-income and money markets products are transient rather than structural. The question investors are likely to ultimately face is whether they wish to secure a guaranteed loss in real terms or invest for higher than inflation yields and NAV growth at very moderate rates of risk. Five-year and 10-year UK gilt yields, as at 2 October 2023, are at 4.55% and 4.50%, respectively, and UK money market funds are typically returning 4.5–5.0% at present. Both of these are below UK inflation rates (UK inflation was at 6.7% at end-August 2023).

The yield on trusts in the renewable energy infrastructure sector is above inflation. The sector has an average yield of 7.39% as at 3 October 2023, with many individual trusts higher than this. In addition, many trusts offer elements of income and capital growth. The underlying revenue models of assets within trusts can have explicit inflation linkages for revenue, or methods by which inflation is passed through. Some have government price guarantees or historical subsidies for older assets, which are repriced annually in line with inflation. Most trusts also have organic growth pipelines and opportunities to improve asset performance that are typically not reflected in NAV calculations.

We would argue that it does not require the direction of interest rates or the yield curve to begin reversing for the preference for below-inflation nominal yields to run its course. The initial catalyst for the sectoral sell off was the spike in 10-year gilts in late September (see Exhibit 1, which shows base rates, 10-year gilts and PMGR’s stock price for reference). Fixed-income and money market products are attractive in periods of market uncertainty (and these products have seen very significant inflows), but the realisation of longer-term negative real returns is likely to weigh on sentiment. We would argue that just a period of stability is enough to be a catalyst for a reversal in both sentiment and fund flows over time. Naturally a falling rate environment would accelerate this switch back considerably but, importantly, we do not believe it is the trigger required.

For renewable energy as a sectoral bet, the debate about the policy environment potentially changing (particularly in the UK) is missing the point. Renewable energy growth is being driven in many parts by relative competitiveness, and the desire of major end-users to decarbonise and secure their energy supplies. The increased focus of many firms in the sector on recycling assets (ie selling developed assets and expanding their growth pipeline) reflects the significant underlying structural demand for renewable energy in its varied forms, as well as the infrastructure and end-use demand reduction required for decarbonisation.

It is a structural growth industry, and these pipelines of opportunity are generally not reflected in NAV calculations. We believe the current discounts to NAV for many renewable investment trusts are unjustified and see the sector as attractive. This view that the market is missing underlying growth and inflation linkages in assets is shared by PMGR (see below). There is also often conservative assumptions in many NAV calculations, as a long-term decline in power prices from current levels is generally assumed (some assume 40–50% below current levels by 2030).

PMGR presents an attractive, multi-exposure opportunity in this environment. Its portfolio has been progressively repositioned for an inflationary environment, with shifts in 2021 and 2022 towards greater asset exposure in Europe and the UK compared to North America. One of the drivers of this was the higher degree of inflation linkage in European and UK compared to the US, where renewable power is usually sold on pre-determined fixed prices. The manager also expected EU and UK electricity prices to rise, which would benefit renewable generators. This was due to the structural shift in the gas market, replacing Russian gas with higher priced LNG, increased carbon prices, and the increasingly unreliable and ageing French nuclear power stations. These decisions largely proved correct with many of the UK and EU investments reporting very strong financial results, with increased dividends on the back of higher power prices and inflation-linked revenues.

Exhibit 1: UK 10-year gilt yield and base rates versus PMGR share price (p)

Source: Bloomberg, Edison Investment Research. *Note: Base rate (%).

The manager’s view: Are renewable energy investment companies currently being misunderstood?

James Smith, the fund manager of PMGR, recently wrote a report in which he questions whether investors are currently mistaking renewable energy investment companies for bond proxies as well as some of the sectors fundamental factors that will determine long-term value.

In the report, he argues that the disappointing performance among renewable energy investment companies is due to the overriding factor of the recent sharp increases in interest rates and bond yields. Smith highlights that he believes when yields rise, many investors look to sell stocks that they believe to be bond proxies, due to the fact these companies have a high level of visible and recurring revenues, with a high proportion of total investment return expected to come through dividends.

An example is the relationship between Greencoat UK Wind (PMGR’s largest holding within its portfolio) and gilts, comparing total returns over the short, medium and long term. In the short term, there has been a high correlation between Greencoat’s falling share price and the increasing yields on UK government debt over the first half of 2023. However, in the longer term, Greencoat’s total return has significantly outperformed the UK actuaries five- to 15-year gilt index.

Exhibit 2: Greencoat UK Wind’s share price against UK 10-year gilt yield

Source: PMGR, Bloomberg, Edison Investment Research

The underlying argument is that, in the short term, the market is discounting the impact of higher interest rates, but it is forgetting to factor in the benefits of high inflation through inflation linkage within many portfolios. Greencoat incorporates third-party power price forecasts into its NAV calculation. These currently assume power prices will return towards £60/MWh by the end of the decade. However, it is worth noting that the first half of 2023 saw the UK wholesale baseload price average almost double this, at £116/MWh. Therefore, if we assume power prices will remain at current levels or higher, Greencoat’s NAV calculation can be seen as conservative.

Asset allocation

Current portfolio positioning

PMGR invests across a broad range of renewable energy-focused market areas (see Exhibit 4). The majority of the portfolio is made up of the two largest sector areas, with the largest investment weighting, as at end September 2023, being yieldcos and funds at 40.7% of the portfolio. The second largest was renewable energy developers at 30.5%. Both sectors essentially own and operate renewable energy generation facilities. The significant difference between the two is that the developers take on significant project development risk, which includes several years of upfront work securing land for the project, environmental permitting, site design, grid connection application and design, planning approval, local consultation and any necessary studies that are required prior to development. In comparison yieldcos invest in or buy pre-existing assets with the aim of providing direct income to investors. Yieldcos and funds also are increasingly taking on construction risk as they try to improve returns on their assets. More entrepreneurial funds, like Octopus Renewables Infrastructure Trust (ORIT), do however take on construction risk outside of trying to improve returns by buying and developing projects which are in the ready-to-build stage.

Since our last note in March 2023, the geographic weighting of the portfolio has continued to see change, with a 1.4pp decrease in Chinese holdings. The most notable changes are the 4.1pp increase in European holdings and the 3.2pp decrease in global holdings. This highlights the fact the manager is increasingly preferring investments in Europe, as their revenues have better inflation linkage compared to the US and its peers.

Exhibit 3: Portfolio geographic exposure (% unless stated) 

 

Portfolio 3 October 2023 

Portfolio end-February 2023 

Change (pp) 

United Kingdom 

34.0

34.2

-0.2

Europe (ex UK) 

34.0

29.9

4.1

Global 

17.4

20.6

-3.2

North America 

8.5

8.5

0

Latin America 

2.6

2.6

0

China 

1.7

3.1

-1.4

Cash 

1.8

1.9

-0.1

 

100.0 

100.0 

 

Source: Premier Miton Global Renewables Trust, Edison Investment Research 

Greencoat UK Wind (UKW) remained PMGR’s largest holding, representing a 7.2% weighting in the company’s portfolio. As mentioned in the manager’s view section, where we discussed Smith’s recent paper on the renewable energy investment trust market, Greencoat’s performance in the short term has seen its stock being traded off with the continued increase in interest rates. However, Smith states that he is not overly concerned with the company’s short-term performance, considering the recent market conditions, as he believes that UK renewable energy investment trusts are being mistreated within the market and are being traded as bond proxies (as outlined above).

Three European companies are represented in PMGR’s top 10 holdings: RWE and two funds, ORIT and Aquila European Renewables Income Fund (AERI). While listed in the UK, ORIT and AERI operate in Europe, and also add to the yieldcos and funds segment of PMGR.

The manager added to both the RWE and Octopus positions since February 2023 due to share price weakness, as he believes both funds have solid portfolios and their share prices are likely to rebound. As of 3 October 2023 PMGR’s top 10 holdings represent 53.9% (see Exhibit 4) of the entire portfolio (up from 52.2% as at end-February 2023), with seven of these holdings being yieldcos and funds. Two new additions to the top 10 were Foresight Solar Fund (with a 4% weighting in the portfolio), which pioneered solar investing as a UK-listed investment trust with assets across the UK, Spain and Australia, and SSE (4.1%), a multinational energy company headquartered in Scotland.

Stock performance for many underlying holdings has also been affected by generally poor sentiment towards renewables developers in the past two months. This has been driven in part by newsflow stemming from some specific high-profile profit warnings and revisions by major renewables developers Ørsted and NextEra Energy Partners (neither owned by PMGR). The issues driving these announcements have been quite stock and investment specific and not shared by investments held by PMGR.

Exhibit 4: Top 10 holdings (as at 3 October 2023) 

Company

Sector

Country

Portfolio weight %

3 October 2023

28 February 2023

Greencoat UK Wind 

Yieldcos & funds 

United Kingdom 

7.2

6.5 

RWE 

Renewable energy developers 

Europe (ex UK) 

6.7

5.9 

NextEnergy Solar Fund 

Yieldcos & funds 

United Kingdom 

6.4

6.2 

Octopus Renewables Infrastructure Trust 

Yieldcos & funds 

Europe (ex UK) 

6.1

5.1 

Aquila European Renewables Income Fund 

Yieldcos & funds 

Europe (ex UK) 

5.5

5.2 

Drax Group 

Biomass generation and production 

United Kingdom 

5.1

6.2 

Atlantica Sustainable Infrastructure 

Yieldcos & funds 

Global 

4.4

5.2 

Clearway Energy A Class

Yieldcos & funds

United States

4.4

N/A

SSE

Renewable focused utility 

United Kingdom

4.1

N/A

Foresight Solar Fund

Yieldcos & funds

United Kingdom

4.0

N/A

Grenergy Renovables 

Renewable energy developers 

Global 

4.0

4.0 

Iberdrola 

Renewable focused utilities 

Global 

N/A

4.0 

Top 10 (% of holdings) 

 

 

53.9

52.2 

Source: Premier Miton Global Renewables Trust, Edison Investment Research. Note: *N/A when not in the top 10 holdings at 28 February 2023. 

In terms of the portfolio’s sector exposure (Exhibit 5), in the six-month period since end-February 2023, the largest adjustments are decreases of 1.1pp in biomass generation and production and 1.7pp in energy storage, as well as increases of 1.3pp in renewable financing and energy efficiency and 2.0pp in yieldcos and funds.

Exhibit 5: Portfolio sector exposure (% unless stated) 

 

Portfolio 3 October 2023 

Portfolio end-February 2023 

Change (pp) 

Yieldcos & funds 

40.7

38.7

2

Renewable energy developers 

30.5

29.7

0.8

Renewable focused utilities 

9.2

9.8

-0.6

Energy storage 

6.2

7.9

-1.7

Biomass generation and production 

5.1

6.2

-1.1

Renewable technology and service 

2.2

2.4

-0.2

Electricity networks 

2.8

2.4

0.4

Cash/net current assets

2.6

-

-

Renewable financing and energy efficiency 

1.3

0

1.3

Waste to energy 

0.3

1.2

-0.9

Liquidation portfolio 

-

0

-

Carbon markets 

-

0

-

 

100.0 

100.0 

 

Source: Premier Miton Global Renewables Trust, Edison Investment Research

Performance and discount

As shown in Exhibit 6, for the 12 months to end-September 2021, PMGR strongly outperformed its benchmark. However, this was not the case for the 12-month period ending in September 2023, when both PMGR’s total share price return and total NAV return fell further behind the MSCI AC World Index and the CBOE UK All Companies Index. Compared to the note we released in March, however, PMGR’s performance is significantly more closely correlated and in line with its benchmark, the S&P Global Clean Energy Index, as can be seen in Exhibits 6 and 7, suggesting its performance is more reflective of the general market conditions (which were mentioned at the beginning of the report).

Exhibit 6: Five-year discrete performance data

12 months ending

Total share price return (%)

Total NAV return (%)

Benchmark*
(%)

MSCI AC World
(%)

CBOE UK All Cos (%)

30/09/19

21.4

34.0

25.4

25.4

27.3

30/09/20

2.4

4.8

(11.9)

(11.9)

(7.4)

30/09/21

63.0

56.0

(18.7)

11.9

7.7

30/09/22

(5.1)

(7.6)

9.0

14.2

17.3

30/09/23

(30.3)

(29.6)

(29.3)

(7.3)

(5.8)

Source: Refinitiv. Note: All % on a total return basis in pounds sterling. *Benchmark is S&P Global Clean Energy Index; prior to FY21 it was a broad global infrastructure index.

While the fund does not construct its portfolio with reference to any index, in 2021 it adopted a new performance benchmark, the S&P Global Clean Energy Index. Over the 12 months to end-September 2023, PMGR has performed in line with the index, which can be seen in Exhibit 7, which is a true a reflection of the general renewable energy market conditions seen over the last year. For the six-month period to 30 June 2023, PMGR had an asset total return of negative 6.2% (negative 7.3% for the year ended 31 December 2022), which slightly outperformed the S&P Global Clean Energy Index in the same period with a value of negative 11.5% (6.6% for the year ended 31 December 2022).

Exhibit 7: Investment trust performance to 31 August 2023

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised. *Benchmark is S&P Global Clean Energy Index; prior to FY21 it was a broad global infrastructure index.

Note that the index returns for periods of more than one year in Exhibits 6, 7, 8 and 9 also include the trust’s benchmark prior to FY21, which was a broad global infrastructure index. The index, like PMGR’s portfolio, consists of listed companies involved in the generation and supply of renewable energy, although in terms of constituents the two are very different, with the index having higher exposure to the United States and to companies at the technology/components end of the renewables value chain.

Exhibit 8: Share price and NAV total return performance, relative to indices (%)

 

1 month

3 months

6 months

1 year

3 years

5 years

10 years

Price relative to Benchmark*

(1.3)

4.0

13.7

(1.4)

72.2

93.7

38.9

NAV relative to Benchmark*

(3.9)

(3.6)

(1.0)

(0.4)

62.1

106.2

36.9

Price relative to MSCI AC World

(6.2)

(14.1)

(17.4)

(37.2)

(17.8)

(10.5)

(45.2)

NAV relative to MSCI AC World

(8.7)

(20.3)

(28.1)

(36.6)

(22.6)

(4.8)

(46.0)

Price relative to CBOE UK All Cos

(8.7)

(15.3)

(15.2)

(39.2)

(24.2)

11.8

(8.4)

NAV relative to CBOE UK All Cos

(11.1)

(21.4)

(26.2)

(38.5)

(28.6)

19.0

(9.7)

Source: Refinitiv, Edison Investment Research. Note: Data to end-September 2023. Geometric calculation. *Benchmark is S&P Global Clean Energy Index; prior to FY21 it was a broad global infrastructure index.

Exhibit 9: NAV performance versus benchmark over three years

Source: Refinitiv, Edison Investment Research

Peer group comparison

In Exhibit 10 we present PMGR alongside a group of peers who have been selected from several AIC sectors, all of which to some extent are connected to renewable energy, utilities and/or infrastructure.

Although PMGR is the smallest fund in the peer group in regard to market capitalisation, if it was measured by total shares including the zero dividend preference shares (ZDPs), it would be similar in size to Jupiter Green. As at our last note in March 2023, PMGR ranked third by NAV total return performance over three years (out of 16 funds). However, in the seven months since, it has fallen to 16th. This reflects difficult market conditions over recent months. Ongoing charges at 1.68% (1.7% in FY22) are above average; however, PMGR has maintained a strong dividend yield of 6.2%, positioning it ninth within the peer group. PMGR ranks 16th (of 16 peers) by NAV total return performance over the past year.

Exhibit 10: Selected peer group performance to end-September 2023*

% unless stated

Market cap*** £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Ongoing charge

Discount (cum fair)

Dividend yield***

Premier Miton Glb Renewables Trust

20.5

(30.2)

1.9

44.3

59.7

1.7

(9.2)

6.2

Impax Environmental Markets

1,060.9

(1.6)

18.1

46.4

179.4

0.8

(7.6)

0.8

Jupiter Green

40.4

(1.1)

7.1

20.5

82.8

1.7

(12.9)

-

Menhaden Resource Efficiency

76.7

16.8

27.1

58.4

1.8

(35.6)

0.2

Ecofin Global Utilities & Infra

185.9

(8.7)

24.7

53.0

1.4

(12.4)

4.6

Bluefield Solar Income Fund

715.4

2.6

48.7

71.7

165.0

1.0

(16.3)

7.0

Foresight Solar

540.2

0.6

52.9

54.0

1.1

(24.7)

7.8

Gore Street Energy Storage Fund

366.3

12.1

47.2

66.1

1.4

(33.0)

9.2

Greencoat UK Wind

3,147.6

31.6

64.2

92.4

189.8

0.9

(18.1)

5.6

Gresham House Energy Storage

575.7

2.8

73.5

1.1

(31.6)

7.0

JLEN Environmental Assets Group

652.3

2.3

53.4

67.2

1.2

(18.6)

7.1

NextEnergy Solar

505.2

(5.4)

34.4

44.5

1.1

(21.7)

8.6

Octopus Renewables Infrastructure

484.7

4.6

28.1

1.1

(20.4)

6.0

Renewables Infrastructure Grp

2,598.6

3.7

38.7

63.7

140.3

0.9

(20.9)

6.5

SDCL Energy Efficiency Income

716.4

1.3

17.4

1.0

(35.0)

8.8

Utilico Emerging Markets

435.0

11.7

43.6

35.1

88.7

1.4

(15.5)

3.7

Simple average (16 funds)**

757.6

2.7

36.3

55.2

129.4

1.2

(20.8)

5.9

PMGR rank in peer group

16

16

16

11

7

2

2

9

Source: Morningstar, Edison Investment Research. Note: *Performance as at end-September 2023 based on ex-par NAV. TR, total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100=ungeared). **Median for dividend yield. ***As at 3 October 2023.

PMGR has the second lowest discount to NAV within the peer group at 9.2% as at end-September (14.3% as at 10 October 2023), which is significantly below the peer group average of 20.8%. Since our last note in March 2023, nearly the entire peer group has widened or increased its discount to NAV, except for PMGR, which has closed its discount from 17.7%. This demonstrates the resilience PMGR’s discount to NAV has shown in the six-month period since March 2023 (as can be seen in Exhibit 11) in comparison to the rest of the sector. This somewhat reflects the investment structure of PMGR, with its NAV being largely comprised of listed market valuations rather than private valuations.

Exhibit 11: Five-year % discount to NAV at par (diluted)

Source: Refinitiv, Edison Investment Research

Dividends

Exhibit 12: Dividend history since 2018

Source: Bloomberg, Edison Investment Research. *Note – total currently paid for FY23 as of end-September

A total dividend of 3.7p (two quarterly dividends of 1.85p each, which is 0.10p up from the quarterly FY22 dividend payment) has been paid so far in FY23. These dividends represent an increase of 5.7% compared to the dividends paid in respect to the first half of 2022. It is, however, worth noting that the previous dividend of 10.2p was rebased downwards, from FY21 onwards, due to a change in capital structure, which resulted in a repayment of a portion of the funds ZPD shares at the end of 2020.

Fund profile: Focused on listed renewables

Premier Miton Global Renewables Trust has been part of the Premier (now Premier Miton) stable for almost 20 years, ever since the 2003 rollover of the Legg Mason International Utilities Trust. Initially known as Premier Utilities Trust, it changed its name to Premier Energy & Water Trust (PEWT) in 2008 and subsequently to Premier Global Infrastructure Trust (PGIT) in late 2017. PGIT’s mandate built on that of PEWT, investing in equity and equity-related securities of companies operating in the energy and water sectors generally, as well as other generic infrastructure investments. In October 2020, reflecting a gradual shift in focus towards the renewable energy segment of the infrastructure universe, PGIT’s shareholders voted in favour of proposals to change its name to Premier Miton Global Renewables Trust (PMGR) and its investment remit to a more targeted investment proposition dedicated to renewable energy and sustainable infrastructure investments. The trust has been managed since 2012 by James Smith.

PMGR sits in the AIC’s Infrastructure Securities sector, a peer group for funds that invest in infrastructure shares. There is currently no sector for funds investing in renewable energy shares, underlining the differentiation of the trust’s approach. While it is hard to find an equity benchmark to reflect PMGR’s diversified global approach, since FY21 the trust has measured its performance against the S&P Global Clean Energy Index (previously it used a broad global index of infrastructure shares).

The trust’s official investment objective is to achieve a high income and to realise long-term growth in the capital value of its portfolio. PMGR pays dividends quarterly. The trust is geared via ZDPs (see below).

Gearing (ZDPs)

PMGR’s policy is not to employ any gearing through long-term bank borrowing. However, the company employs gearing through the issue of ZDP shares by PMGR Securities 2025. The group is not subject to a maximum level of such gearing but the number of ZDP shares that may be issued is limited by the applicable cover test in respect to those ZDP shares (the ratio of the NAV of the group plus the accrued capital entitlement to the ZDP where capital entitlement must not be less than 3.5 times).

PMGR’s use of ZDPs as gearing (see our initiation note for more details) has the advantage of eliminating annual interest coupons, with the redemption value of the ZDPs instead hopefully being covered by the trust’s higher investment returns (as a result of the gearing effect) over the life of the ZDP issue, although it also carries the potential risk of being highly geared in a falling market. The 2025 ZDP issue was smaller than previous issues, with £14.2m shares issued at 100p – equivalent to c 50% gearing – on 30 November 2020. The 2025 ZDPs have a redemption price of 127.61p, equivalent to a gross redemption yield of 5.0% at issue.

This gearing is calculated as the ZDP share liability over the equity attributable to ordinary shareholders. The nature of the ZDP shares means that the gearing is, for the time being, ‘semi-permanent’. PMGR’s board will review the company’s capital structure on the maturity of the ZDP shares in 2025.

Gearing based on ordinary shares at end-August 2023 was 39.55% (56.5% for the six months to June 2023 and 48.4% as at 31 December 2022), and as at 30 June 2023 the ZDP share cover (non-cum) was 2.32x (2.51x as at 31 December 2022). The NAV total return for the ZDP shares was negative 10.4% in the six-month period end 30 June 2023.

Capital structure

PMGR is an investment trust with two classes of share: ordinary shares and ZDPs, which it has used throughout its existence to provide gearing. PMGR has an indefinite life, subject to a five-yearly continuation vote, the next of which is due in 2025. At the March 2020 vote, more than 99% of votes cast were in favour of continuation.

As shown in Exhibit 13 below (major shareholders), PMGR’s ordinary shares have a high level of retail ownership on platforms such as Hargreaves Lansdown, Interactive Investor, AJ Bell and Halifax Share Dealing (which together account for around half of the share base). The average daily trading volume on the London Stock Exchange over the past 12 months (Exhibit 14) was c 24.4k ordinary shares, or c 0.1% of the share base.

Given PMGR’s geared capital structure, movements in gross assets are amplified in the net assets. PMGR’s ZDPs are also a sterling liability, therefore the manager may use currency hedging to offset any sterling underweight in the portfolio and is currently substantially hedged on the portfolio’s euro exposure.

Exhibit 13: Major shareholders

Exhibit 14: Average daily volume

Source: Bloomberg, as at 2 October 2023

Source: Refinitiv, 12 months to end-September 2023

Exhibit 13: Major shareholders

Source: Bloomberg, as at 2 October 2023

Exhibit 14: Average daily volume

Source: Refinitiv, 12 months to end-September 2023


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General disclaimer and copyright

This report has been commissioned by Premier Miton Global Renewables and prepared and issued by Edison, in consideration of a fee payable by Premier Miton Global Renewables. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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