Like an ocean liner, The Renewables Infrastructure Group (TRIG) has sailed through 2020’s turbulence, maintaining its trajectory of providing steady returns to shareholders. The aim of the investment company is to provide a long-term, stable and sustainable dividend for shareholders, with any surplus cash flows after debt amortisation being reinvested to help maintain the capital value of the investment portfolio.
TRIG differentiates itself from the rest of the sector by being a one-stop shop investing across a range of technologies (wind, solar and battery storage so far), and with a remit to invest across the UK and Europe. As we discuss in the Portfolio section, TRIG has continued to invest overseas in building its portfolio, and overseas assets (i.e. those not based on the UK mainland) now represent 42% of the portfolio. Offshore wind has grown as a proportion of the total value of the portfolio from 8.5% to 29% (as at 31/10/2020), with further assets in the pipeline. TRIG’s growing scale enables larger-sized assets, of which offshore wind farms are typical examples.
The investment company has achieved a progressive dividend every year since being listed in 2013, which we illustrate in the Dividend section. Despite the unique challenges of 2020, and potential unknowns as we head toward Brexit, the board has announced that it hopes to be able to set a dividend target next year (for 2021) to at least maintain the 2020 level.
In terms of total returns, TRIG has delivered total NAV returns of 8% per annum. This means it has significantly outperformed the FTSE All-Share Index on both a price and NAV total return basis since launch, but with lower volatility.
The strong position of TRIG relative to traditional sources of equity income has become more apparent this year. Oil and banks’ ability to pay dividends this year has been sharply reduced, which has thrown an ever more positive light on income sources such as TRIG.
These income attractions, but also TRIG’s strong ESG credentials (see ESG), are the reason why in our view the company has continued to trade at a meaningful premium to NAV. Currently at 13.2%, this is lower than the 16% average for 2020. At the same time, the risks of investing at chunky premiums are illustrated by the experience of TRIG and its peers in March 2020.
Since its IPO in 2013, TRIG has been on a growth trajectory, and now has a portfolio worth £2bn. Shareholders have benefitted, both through issuance of equity at a premium – which is marginally incremental to NAV – but also because growth reduces costs per share. For the six months to 30 June 2020 the OCF was 0.96%, compared to 0.98% for the same period in 2019. With further growth we would expect this to continue to reduce.
In the first six months of 2020, the dividend was 1.2x covered by cash generation. It is worth noting that this metric is after the cost of amortising the project finance debt (see Gearing section), without which the dividend would have been covered 2.2x. Notwithstanding power prices being lower than expected, the board projects positive dividend cash cover for 2020. Yielding 5.2% at the current price, TRIG therefore offers an attractive income, especially when the equity income picture elsewhere looks relatively cloudy.
|High yield of 5.2% with potential for NAV preservation from reinvestment of surplus cash
||High premium to NAV in absolute terms
|Pure exposure to diversified assets, technologies and subsidy regimes which are uncorrelated to equity markets and score well on ESG matters
||Dividend cover not as high as funds which are not amortising (paying down) debt
|Debt being repaid within the subsidy period (amortising)
||Valuations based on long-term assumptions which may prove optimistic over time