Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Greencoat UK Wind. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
UKW is in a strong position to capture the benefit of current high energy prices…
Overview

Greencoat UK Wind (UKW) offers exposure to a diversified portfolio of wind farms around the United Kingdom. UKW was the first trust to launch in the AIC’s renewable energy infrastructure sector and, as such, had a first-mover advantage in assembling a £4bn portfolio of assets, constituting 43 wind farms. UKW’s size has latterly allowed it to buy larger, more institutionally sized assets that benefit from economies of scale but also to become more diversified.

UKW’s proposition is a relatively simple one: to invest at high single-digit IRRs (8-9%), pay a dividend linked to inflation, and reinvest any surplus cashflows to grow NAV. In a typical year, the manager’s budget on dividend cover of 1.7x. Despite lower electricity generation during 2021 thanks to lower wind resources, higher electricity prices meant that dividend cover was 1.9x. Reflecting the board’s confidence, UKW announced a target dividend for 2022 of 7.72p, which is an increase of 7.5% and is in line with the increase in RPI over 2021. As such, UKW offers a prospective dividend yield of 4.9% at current prices.

As a matter of policy, UKW does not fix any of its electricity price exposure. In an environment that has seen power prices at elevated levels, this puts it in an advantageous position. The board and manager are able to employ a policy of not hedging power prices because of UKW’s high budgeted dividend cover, which allows plenty of headroom in periods where electricity prices or energy generation might be lower, without stretching the trust’s ability to pay a covered dividend over the short term.

Kepler View

UKW remains the only renewable energy infrastructure fund to continue to explicitly state that its aim is to grow dividends in line with inflation. The advantage of UKW’s simple investment model is that it allows for a higher free cashflow than most peers, which, as we discuss in the Dividend section, affords it the ability to run with an unhedged exposure to electricity prices. Clearly, this presents risks as well as opportunities, but this flexibility is conferring substantial benefits to shareholders currently; UKW has so far announced the largest targeted increase in dividend for 2022 of the peer group.

2020 showed UKW’s strength and resilience, but the second half of 2021 gave a taste of how UKW is able to benefit from higher energy prices. In the current environment, within the AIC Renewable Energy Infrastructure sector, it seems UKW is in a preeminent position to capture the benefit of these conditions. We expect a NAV update from the trust in April 2022, which should show strong Q1 revenue generation, a period that has seen good wind resources and very high energy prices.

UKW has been amongst the best performing of the renewable energy infrastructure funds since it launched in 2013. Added to the immediate benefit from high energy prices, we also highlight UKW’s link to long term inflation. Currently, the assumptions underpinning the NAV look relatively conservative. If inflation persists, then this should lead to a tailwind to NAV returns, all things being equal.

Bull

  • High dividend yield well covered by cash, lowest OCF in sector
  • Continued commitment to RPI-linked dividend growth
  • Uncorrelated assets, and committed pipeline of investments

Bear

  • High premium to published NAV
  • Gearing exacerbates underlying asset valuation movements
  • Valuations based on long-term assumptions which may (or may not) prove optimistic
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2022 Kepler Alternative Income Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for alternative income... Find out more

Fund History

11 May 2022 Catch a tiger by the tail
As inflation bites harder than it has for decades, we consider the best ways for investors to hang on to their capital...
29 Apr 2022 Flash update: Greencoat UK Wind
Reporting performance for the first quarter of 2022, UKW has announced a NAV which represents a 13.2% total return for the 3 months to 31/03/2022...
22 Mar 2022 Fund Analysis
UKW is in a strong position to capture the benefit of current high energy prices…
09 Mar 2022 Private markets: A closer look at infrastructure and renewables
We examine the £27bn listed Infrastructure and Renewable Energy Infrastructure sectors…
01 Dec 2021 How to protect your portfolio from inflation
We highlight trusts which could appeal in an environment where 'transient' inflation is here to stay...
03 Nov 2021 Don't fear the reaper
With market direction hard to call, we consider the case for taking a long-term view in the investment trust sector…
10 Jun 2021 Green is good!
2021 will see billions dedicated to sustainable initiatives, which brings with it a host of possible investment opportunities...
02 Jun 2021 Fund Analysis
UKW’s size and robust model means we think it deserves to trade at a premium to peers…
12 May 2021 Riders on the storm
We look at the yields in the alternatives space and how they have been affected by the pandemic…
09 Mar 2021 Fund Analysis
2020 has proved UKW’s resilience, which continues to target an inflation linked dividend…
24 Feb 2021 Dire Straits or Money for Nothing?
With the sector having seen discounts narrow like never before – our analysts debate whether a premium is a price worth paying…
17 Feb 2021 Jungle Fever
Soaring interest in ESG has exciting implications, but risks pushing some stocks to distinctly unsustainable valuations...
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
26 Nov 2020 Fund Analysis
2020 has proved UKW’s resilience, but is now better value in terms of premium...
15 Oct 2020 Nice guys finish first
ESG has moved from hippy pipe-dream to corporate mainstream, but what is it really and where do we see opportunities?
09 Sep 2020 Time to switch horses?
We look at what returns are likely from equity markets in the coming decade and identify which alternatives could offer similar or greater returns for lower levels of risk…
09 Jul 2020 The next big thing: two mega-trends that everyone should own
Tech has beaten almost everything hands down – but nothing lasts forever. Where else should investors be looking for secular growth themes?
23 Apr 2020 Sucker punch
Two of our analysts debate the merits of equity income and alternative income trusts at this point in time...
12 Mar 2020 The importance of buying earners*
Our analysis shows that the impact of dividend contributions on long term returns is anything but trivial...
04 Mar 2020 Fund Analysis
Recent de-rating, but prospects appear undimmed…
16 Oct 2019 Life on Mars: could inflation take us back to the '70s?
We discuss two potential catalysts for inflation - and the assets that could offer a hedge against it...
09 Oct 2019 Bond proxy?
As a replacement or complement for longer duration bonds, listed alternative income funds look an interesting, well… alternative..
19 Sep 2019 Rebels no more...
Climate change and sustainability is now mainstream - we launch ESG analysis into all of our fund research…
19 Sep 2019 Fund Analysis
UKW invests in operating wind farms, aiming to provide an RPI-linked dividend and preserve the real value of the NAV…
06 Mar 2019 Stairway to heaven
Our research shows that reinvesting the income generated by alternative assets could add a significant boost to long-term portfolio performance…
28 Feb 2019 Fund Analysis
Greencoat UK Wind invests in operating wind farms, aiming to provide an RPI-linked dividend and preserve the real value of the NAV...
30 Jan 2019 The Annuity Portfolio
We reveal our investment trust picks for a high income ...
24 Dec 2018 Why did the chicken cross the road?
Because he was so bored of reading newspapers devoted entirely to Brexit he was hoping he’d be hit by a truck.
25 Jul 2018 The Evergreen Annuity Portfolio
Our Evergreen Annuity Portfolio was set up to provide a high income, rising at least in line with inflation...
19 Jul 2018 A new dawn
As the sun sets on fossil fuels, we examine the opportunities for investors in the burgeoning listed renewable infrastructure sector...
26 Mar 2018 Electric dreams
The global shift toward electrification could spark many opportunities…
21 Mar 2018 Fund Analysis
Aims to provide investors with an annual dividend that increases in line with RPI inflation while preserving the real value of the NAV
24 Jan 2018 Seeing the wood for the trees...
Our model portfolio designed as an annuity alternative is struggling to keep pace with inflation, we review the latest from the constituents…
20 Nov 2017 Under pressure
Our model portfolio designed as an annuity alternative is coping so far, but may struggle to keep pace with inflation at this rate…
20 Nov 2017 Fund Analysis
A differentiated trust generating both income and capital growth from operating UK wind farms
25 Jan 2017 Should I stay or should I go?
That's exactly the question we are asking ourselves as the story at BlackRock Income Strategies unfolds...
16 Nov 2016 Fund Analysis
An update of the Greencoat UK Wind investment trust including share price performance, discount, dividend, premium, asset allocation and gearing analysis...
16 Nov 2016 Weathering well
The Evergreen Annuity Portfolio enters its second year with a solid performance from most of its constituents...
13 Oct 2015 The Evergreen Annuity Portfolio
Five 'all season' investments which will produce a sustained high income without eating into capital...
13 Oct 2015 Fund Analysis
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