Last close As at 05/08/2026
GBP0.39
▲ 0.30 (0.78%)
Market capitalisation
GBP424m
Research: Investment Companies
SDCL Energy Efficiency Income Trust (SEEIT) has taken a prudent approach to discount rate adjustments in the period, leading to a 10.9p reduction in net asset value (NAV) per share from 101.5p to 90.6p. This was largely driven by a 100bp increase in the weighted average unlevered discount rate to 8.7%. The portfolio valuation at the end of H124 stood at £1,066m and investment cash inflow from the portfolio was £47m (a c 9% increase from H123). SEEIT has declared a total aggregate dividend of 3.12p per share for H124, which is in line with its FY24 target of 6.24p (a 4% y o y increase), while maintaining a dividend cash cover of 1.1x, which is expected to grow by the end of FY24 and over the medium term. SEEIT is currently trading at a 33% discount to NAV with a 10% dividend yield.
SDCL Energy Efficiency Income Trust |
H1 results confirm attractive potential total return |
Investment trusts |
5 December 2023 |
Fund objective
Bull
Bear
Analysts
SDCL Energy Efficiency Income Trust is a research client of Edison Investment Research Limited |
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SDCL Energy Efficiency Income Trust (SEEIT) has taken a prudent approach to discount rate adjustments in the period, leading to a 10.9p reduction in net asset value (NAV) per share from 101.5p to 90.6p. This was largely driven by a 100bp increase in the weighted average unlevered discount rate to 8.7%. The portfolio valuation at the end of H124 stood at £1,066m and investment cash inflow from the portfolio was £47m (a c 9% increase from H123). SEEIT has declared a total aggregate dividend of 3.12p per share for H124, which is in line with its FY24 target of 6.24p (a 4% yoy increase), while maintaining a dividend cash cover of 1.1x, which is expected to grow by the end of FY24 and over the medium term. SEEIT is currently trading at a 33% discount to NAV with a 10% dividend yield.
Year end 31 March |
FY20 |
FY21 |
FY22 |
FY23 |
H124 |
NAV (£m) |
323.5 |
694 |
1,073 |
1,125 |
983 |
NAV per share (p) |
101 |
102.5 |
108.4 |
101.5 |
90.6p |
DPS (p) |
5.00 |
5.50 |
5.62 |
6.00 |
3.12 |
Dividend cover |
1.5x |
1.2x |
1.19x |
1.2x |
1.1x |
Source: SEEIT
The largest contributor to the decrease in SEEIT’s NAV per share was the use of higher discount rates to value the portfolio, reflecting both the higher interest rate environment and the increases to the risk premium applied to certain US assets. The total impact resulted in a 1% increase in the weighted average unlevered discount rate to 8.7%, leading to a £129m reduction in the company’s NAV (11.9p per share attributable to discount rates). The levered discount rate increased to 9.4%, off relatively conservative assumptions around refinancing. Assuming structural gearing was maintained at the 35% of NAV medium-term target, it would be closer to 10.5%. The rise in discount rate assumptions increased the portfolio valuation by 11.2% but the fund continues to trade at a considerable discount to the revised NAV (approximately 31%), implying the market is assuming a further 200bp plus rise in discount rates to the low double digits by our estimates.
During H124, SEEIT reported an £89m loss after tax, after £129m of unrealised valuation losses from discount rate increases. The company also invested £93m into predominantly organic investments and existing commitments. Positive inflation correlation on investment returns within the portfolio, however, increased since 31 March 2023 due to a larger number of new contractual inflation-linked contracts and renewals, particularly at Primary Energy. Investment cash flow from the portfolio was £47.4m, a c 9% increase from the comparative period (£43m at 30 September 2022), which was in line with management’s expectations. SEEIT is on track to meet its target aggregate dividend of 6.24p for FY24 and accumulated a dividend cash cover of 1.1x in the period (1.2x at 31 March 2023).
In our view, SEEIT presents an attractive 10% dividend yield and a potential 45% additional return if the discount to NAV closes. The investment manager sees the discount as unwarranted and not reflective of the value of the portfolio. To address the valuation gap, SEEIT has stated it is pursuing selective disposals to further strengthen its balance sheet and focus on delivering accretive projects and other upsides to drive growth in NAV. Buying back shares also remains an option following the £20m share buyback programme completed in H124.
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Research: Industrials
Norcros’s compelling investment case was underpinned at the half year where underlying operating profit was down less than 3% despite material revenue pressure. Group operating margins rose 60bp, the UK business reported record underlying profits and Norcros continued to take market share in both the UK and South Africa. We believe that Norcros’s key strengths are underappreciated and that legacy issues, notably the pension deficit, have been resolved. We retain our estimates and value the shares at 246p, implying c 50% upside.