TRIG aims to provide a sustainable dividend over the long term through investment in a range of different renewable energy technologies in the UK and Europe. In this regard TRIG is differentiated from the peer group as no other peers have a mandate which includes such a wide breadth of asset types and geographies.
Portfolio diversification helps to protect revenues from short-term changes in weather patterns, and also from political environments, power prices and tax regimes. Having a mandate for a diversified portfolio (up to 20% of which is outside of wind and solar) gives the managers plenty of flexibility to deploy capital. We understand that the managers see plenty of opportunity to continue to widen the types of assets that the company invests in as part of the global transition to achieve ‘net zero’. This gives TRIG the opportunity to further burnish its strong sustainability credentials.
TRIG has achieved a progressive dividend every year since listing. As we discuss in the Dividend section, despite the unique challenges that 2020 presented, dividend cover was 1.13x. Mindful of the uncertainties we are all living with and the desire to provide a sustainable long-term dividend, the board’s target dividend for 2021 is the same as that for 2020. At the current share price, TRIG yields 5.3%.
TRIG likely fits the bill for most sustainability investors because of what it invests in, but the team are not resting on their laurels. As illustrated in the company’s updated sustainability report (accessible here), TRIG is pushing to ensure sustainability encompasses more than just its portfolio assets – be that through operations, payment of dividends into the future or even its financing (see Gearing).
TRIG has delivered NAV total returns of 8% per annum. In fact, it has significantly outperformed the FTSE All-Share Index on both a price and NAV total return basis since launch, but with lower volatility. It is now the largest company by market capitalisation in the sector, which continues to expand. The tiered management fee means that as it grows in the future, the benefits of scale reduce costs and mean that the OCF will reduce progressively. Over the past year, costs have been reduced by 4 basis points, and are now at a highly competitive 0.94%.
As regards ESG, in our view one of the most significant developments for investors is that manager InfraRed has introduced a new sustainability-reporting framework across the portfolio to measure performance against a wider base of sustainability KPIs (Key Performance Indicators). In our view this is important because it will allow investors to hold the managers and board to account, and enable year-on-year progress to be measured against TRIG’s four sustainability goals. TRIG is clearly putting ESG front and centre of all it is doing, and therefore warrants consideration by even the most discerning ESG investor.
TRIG’s shares currently trade at a premium of 13% to JPMorgan Cazenove’s estimated NAV, relative to the peer group’s weighted average of 10%. In our view, this premium reflects the market’s appreciation of the diversified nature of the underlying portfolio and cash flows.
|A high yield of 5.3%, with the potential for NAV preservation from reinvestment of surplus cash||High premium to NAV in absolute terms|
|Has a pure exposure to diversified assets, technologies and subsidy regimes which are uncorrelated to equity markets, and scores well on ESG matters
||Dividend cover not as high as that of funds which are not amortising (paying down) debt
|Debt being repaid (amortising) within each asset’s subsidy period
||Valuations based on long-term assumptions which may prove optimistic over time