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Research: Investment Companies
Foresight Solar Fund (FSFL) released a strong operational trading update, with production 2.8% ahead of budget, cash receipts of £52.3m, 42% higher year on year, and forward power sales supporting a 1.5x dividend cover forecast by the company for the next three years. FSFL’s Q2 NAV/share was down 4.3p (-3.4%) from Q1 at 119.9p, with 74% of this move due to 50bp rise in discount rate assumptions for UK assets to 7.5%. FSFL trades at an attractive 19% discount to NAV and 8% dividend yield, in our view.
Foresight Solar Fund |
Q2 NAV, trading and capital recycling update |
Investment companies Renewable energy infrastructure |
10 August 2023 |
Analysts
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Foresight Solar Fund (FSFL) released a strong operational trading update, with production 2.8% ahead of budget, cash receipts of £52.3m, 42% higher year on year, and forward power sales supporting a 1.5x dividend cover forecast by the company for the next three years. FSFL’s Q2 NAV/share was down 4.3p (-3.4%) from Q1 at 119.9p, with 74% of this move due to 50bp rise in discount rate assumptions for UK assets to 7.5%. FSFL trades at an attractive 19% discount to NAV and 8% dividend yield, in our view.
Q322 |
Q422 |
Q123 |
Q223 |
|
NAV (£m) |
771.2 |
771.5 |
757.5 |
726.6 |
NAV per share (pence) |
126.4 |
126.5 |
124.2 |
119.9 |
GAV(£m) |
1,299.7 |
1,296.3 |
1,268.2 |
1,237.2 |
Source: FSFL data, Edison Investment Research. Year end is 31 December.
Electricity production for the global portfolio was 2.8% above budget in H123, helped by its geographic diversification. Higher-than-expected irradiation in the UK (6.2%) and Australia (6.8%) resulted in production up 4.3% and 3% against FSFL’s forecasts in those geographies, respectively. Spanish generation was 2.2% below expectations due to heavy rains and higher-than-expected temperatures. FSFL has continued to benefit from its prudent price exposure management. In the UK (which accounted for 84% of revenue), the average fixed price of £197/MWh compared with average spot prices of £108/MWh. FSFL expects contracted revenue to represent 90% of sales for 2023, 85% for 2024 and 75% for 2025.
FSFL announced it intends a phased divestment of 200MWp of its operational assets over the next 18 months, proceeds of which will be used to repay its existing revolving credit facility, fully fund its expected pipeline into 2025 and keep its buyback programme under review (FSFL announced it would double its £10m buyback programme to £20m, with buybacks adding 0.1p to NAV in Q2). FSFL’s growth pipeline includes moving ahead with its 50MW Lunahead two-hour battery energy storage system (BESS) and progressing its 50MW Clayfords two-hour BESS project. Total debt was £510.6m, 41.3% of GAV, well within the 50% limit. In August, FSFL secured a one-year extension to its revolving credit facility (maturity date now February 2026 and margins unchanged at 185–195bp over SONIA).
FSFL’s June 30 NAV/share was 119.9p, down 4.3p (3.4%) from March 30. 3.2p of this move (74%) was due to 50bp rise in discount rate assumptions (levered rate assumption for UK assets was raised from 7% to 7.5%, other regions remained unchanged) reflecting rises in interest rates. Lower forward power price forecasts reduced NAV/share by 1.4p, offset by 0.9/share positive impact of lower tax payments under the UK generators levy. FSFL is trading at a 19% discount to NAV, and we believe that a higher interest rate environment is already more than reflected in its share price. FSFL represents an 8% yield and management has confidence in 1.5x dividend cover in the next three years, underpinned by forward power sales.
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Research: TMT
Claranova reported FY23 revenue growth of 7%, or 2% on a constant currency organic basis. While this was below its 10% growth target, the company still expects to report EBITDA growth of 25–30% for FY23 and continues to target EBITDA margins of 10% by FY25. We have revised our revenue forecasts to reflect Q423 performance but have maintained our EBITDA forecasts for FY23 and FY24 and reflected the recent capital raise.