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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
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Overview

Greencoat UK Wind (UKW) provides a pure investment exposure to UK wind farms, with the aim of delivering a high, RPI linked, income return for shareholders whilst maintaining capital value in real terms.

We have recently launched an Environmental, Social & Governance (ESG) analysis section as part of our standard fund profiles. From an ESG perspective, UKW clearly ticks the “environment” box in that investing in UKW provides the long-term capital which enables an increase in renewable energy provision in the UK, and the shift to a lower carbon economy. The managers estimate UKW prevents over 1m tonnes of CO2 per annum from being emitted with thermal generation being the alternative. We calculate that this is equivalent to 0.8kg per share. Setting this into context, a flight from London to Milan emits 181kg of CO2 (Source: Atmosfair). A £10k investment in UKW is equivalent to 5.6 tonnes of CO2 “prevented” per year.

In other respects, Greencoat as manager is clearly a keen proponent of ESG, and aware of their responsibilities therein. Greencoat were signatories to the UN-supported Principles for Responsible Investment (PRI) in 2016 and provide a lot of detail of how they incorporate ESG issues in their decision-making process and asset management.

Wind is a resource that the UK has plenty of. In 2018 it was a significant contributor to the UK’s electricity supply – meeting 17% of the country’s total demand (renewables as a whole contributed 30%). As such, it is likely to remain one of the central planks of the UK’s strategy to achieve a lower carbon economy. Greencoat UK Wind (UKW) currently owns a portfolio of 35 wind farms around the UK, which together generate enough electricity to power 940,000 homes and is the largest renewable infrastructure fund listed on the LSE with net assets of £1.9bn.

UKW remains amongst the best performing of the renewable infrastructure funds since it launched in 2013. Since launch, the company has delivered strong total returns comprising the 6p dividend which has risen with RPI, and capital growth of 23.9%. In share price terms, shareholders have enjoyed a total return of 96.8% in just over six years. Despite the considerably lower volatility that the company exhibits, on a NAV total return basis UKW has outperformed the FTSE All Share Index total return since launch by over 30 percentage points.

UKW’s main objective is to pay a high dividend to shareholders that is linked to inflation (RPI) and to preserve capital after taking inflation into account. The trust has a target for 2019 of 6.94p per share, representing a 2.66% increase over the prior year, and in line with RPI for December 2018. This year so far, UKW has paid two dividends totalling 3.47p which is in line with the target. Since launch (and based on the dividend target for 2019) the dividend has risen by 2.95% p.a., which compares to the retail prices index of 2.6% p.a. over the same period. At the current share price, the prospective yield is 5.0%.

Around 50% of the company’s cashflows are directly index-linked, with the remainder being exposed to electricity prices. As such, electricity prices, which are assumed to have a correlation to inflation, affect UKW’s ability to grow the NAV by RPI in the long term. Given the high dividend cover of 1.7x on average, the company expects to be able to continue to grow the dividend by RPI on an annual basis over the long term.

UKW has been growing strongly, and during 2019 so far has invested in excess of £600m funded from equity issuance and re-investing surplus cashflows supplemented by debt facilities. Net assets are now £1.9bn. Shareholders benefit from this growth in the form of a declining OCF, which has been coming down rapidly and through operational economies of scale within the business. As at the end of 2018, the OCF was 1.13%, a reduction from the 1.24% level at the end of 2017, and 1.46% at the time of initially listing. The published forecast OCF from the managers for 2019 was 1.08% at the beginning of the year but with over £500m of new equity raised during the first half of 2019, we expect the run-rate OCF to be nearer to 1%.

Many of the listed 'alternative income' funds continue to trade at significant premiums – and UKW is no exception on a current premium to NAV of 13%.

Kepler View

UKW should appeal to all sorts of investors. We continue to believe that UKW offers valuable income and diversification properties to portfolios. To date, the company has delivered on all of its promises. Dividend growth has matched RPI, and the capital value of the NAV has risen ahead of RPI. The company employs a modest amount of longer-term and short-term gearing to enable it to pay a high level of dividends, as well as (in an average year) to reinvest around a third of cashflows in new assets to maintain the NAV in real terms.

From an ESG perspective, UKW’s attractions are abundantly clear. The manager’s efforts in terms of the PRI’s six principles will clearly have a positive effect at the margin, but in our view the main attractions to ESG investors will be positive effect that investing in UKW has in helping the shift to a lower carbon economy.

In our view, political risks are the main external risk to be aware of, but there seems to be increasing acceptance that renewable energy should form a core part of our long-term energy mix. Barring any major changes to the political landscape or long-term power prices, the company should be able to continue to reinvest surplus cashflows to maintain the NAV in real terms. Relative to many funds, the key drivers - and risks - to returns are entirely uncorrelated. The dividend yield of 5% looks attractive in this context, although we would caution against chasing the share price too high given the magnifying effect a reversal of the premium rating will give to share price returns should the company hit any road bumps in NAV terms.

bull bear
High dividend yield, well covered by cash Premium to NAV
Continued commitment to RPI-linked dividend growth Exposure to UK political risk but in an industry that has political and popular support
Uncorrelated assets Valuations based on long-term assumptions which may (or may not) prove optimistic
Continue to Portfolio
2024 Kepler Alternative Income Rated Fund

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

Fund History

01 May 2024 Flash Update: Greencoat UK Wind
UKW’s first quarter update shows the trust is well-placed for continued growth…
20 Mar 2024 How to grow old gracefully (and preferably rich)...
Ahead of the final week of our event, focused on retirement planning, we consider some of the complexities of portfolio construction…
20 Mar 2024 Fund Analysis
Chunky dividend cover is the key to UKW’s resilient proposition…
04 Mar 2024 Greencoat UK Wind: Discounting too much
Wholesale electricity prices are falling, but UKW’s dividend and buyback look secure…
27 Mar 2024 Greencoat UK Wind
Stephen Lilley
Rewatch this webinar as part of our month-long online series 'Themes for your ISA in 2024' hosted by the team at Kepler Trust Intelligence throughout March...
Watch Recording
09 Feb 2024 Flash update: Greencoat UK Wind
UKW’s total return strategy continued to bear fruit in 2023…
17 Jan 2024 Top of the Pops
We reveal the winners of our investment trust ratings for 2024…
10 Jan 2024 Definitely maybe
Fund flows and discounts may shed some light on a once-in-a-generation opportunity…
29 Nov 2023 We need to talk about discounts
Discounts are the problem and the solution…
21 Nov 2023 Winds of destiny
Newsflow in the wind sector does nothing to derail the long term attractions of the renewable energy infrastructure sector…
31 Oct 2023 Flash update: Greencoat UK Wind
UKW’s board appears bullish, with an inflation beating dividend and £100m buyback announced…
04 Oct 2023 Get real
The prospect of attractive real returns seems to be ignored by the market…
14 Aug 2023 Fund Analysis
Increased clarity on underlying assumptions highlights UKW’s resilient proposition…
09 Aug 2023 Should I stay, or should I go?
Re-appraising the invitation to the bond party…
27 Jul 2023 Results analysis: Greencoat UK Wind
UKW’s resilient NAV and increased discount rate suggest strong prospective returns…
26 Apr 2023 Hope springs eternal
Far-fetched as it might seem, we imagine some scenarios where a UK government might actually do something useful – and the investment trusts that could benefit…
22 Mar 2023 Good vibrations
We identify some sectors with structural discounts we think could close over time…
30 Mar 2023 Greencoat UK Wind - A unique, sustainable route to income
Stephen Lilley
Rewatch this webinar from our month-long online series 'A feast of ideas for your ISA' hosted by the team at Kepler Trust Intelligence throughout March...
Watch Recording
09 Feb 2023 Here comes the sun
Our analysis suggests renewable energy should be at the core of a well balanced portfolio...
07 Feb 2023 Fund Analysis
UKW’s strong performance isn’t necessarily reflected in the share price…
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
21 Dec 2022 Reasons to be cheerful
We find reasons to be cheery this Christmas in the long-term trends which are going to transform society and generate returns…
21 Sep 2022 Jolly green giant
There could be a solution to economic troubles on the horizon, and one where the UK is a world leader...
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 Weathering well
The Evergreen Annuity Portfolio enters its second year with a solid performance from most of its constituents...
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...
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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