Fund Profile

TRIG - Renewables Infrastructure Group 09 October 2019

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by TRIG - Renewables Infrastructure Group. 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

The Renewables Infrastructure Group (TRIG) is a one-stop shop for the burgeoning renewable energy sector. It differentiates itself from the other funds in the sector by being a non-specialist fund (wind, solar and battery storage so far) but with a remit to invest across the UK and in European countries where the directors and managers believe there is a stable renewable energy framework. Recently TRIG has announced a further extension of this policy, and the board is seeking shareholder approval to increase the proportion of assets the company can invest in Europe from 50% to 65%.

TRIG invests in assets which offer attractive long-term cash flows, elements of which are linked to inflation. The aim of the company is to provide long-term, stable dividends for shareholders, with any surplus cash flows after debt amortisation being re-invested to help maintain the capital value of the investment portfolio. The current portfolio, when fully built out in 2020, will be represented by 71 projects, with net capacity of 1.5GW. This is equivalent to 1 million UK homes or 1% of the total electricity generated in the UK.

Wind is currently the largest component of the portfolio (86% by value). However in the company’s recent announcement the managers state that to further diversify the portfolio they are considering investing in unsubsidised solar plants in Iberia, taking advantage of steeply declining capital costs and high solar resource. Solar provides a natural complement to wind technologies, given its peak electricity generation is during the summer months, while for wind peak generation occurs in the winter.

The push to invest overseas has gathered pace over the last couple of years, and during the 2018 calendar year 77% of new investments by value were made outside the UK. For the six months to end-June 2019, the company has invested in five projects, all of which are overseas (in Sweden, France and Germany). In total, 45% of the portfolio is currently invested outside the UK, up from 28% at the end of 2018.

TRIG has a progressive dividend policy. The company’s dividend has increased each year since launch, at an average compound annual rate of 1.8% pa. Every year the board sets a dividend target for the following year, payable in four equal instalments. The current dividend target is 6.64p per share, equivalent to a yield of 5.1% at the current price and representing an increase of 2.2% from 2018.

The company has delivered strong and consistent returns since inception. Over the past five years, it has outperformed the FTSE All Share index on a NAV total return basis, but with lower volatility. Since its initial public offering (IPO) in 2013 the company has delivered total shareholder returns of 10.4% per annum (to 30 June 2019).

TRIG currently has long-term gearing of approximately 36% of portfolio enterprise value, all of which is all held at the project level. This is at the low end of the peer group. The longer-term debt is amortised over the life of each asset’s specific subsidy regime, which de-risks these assets over time (unsubsidised assets are not geared).

The company continues to enjoy robust demand for its shares. Currently the share price premium over NAV is around 14%, a slight premium to the sector average premium of 12.7% (Source: Numis).

Kepler View

TRIG continues to offer a sensible one-stop shop for investors wanting a broad exposure to the attractive cashflows that renewable energy projects currently offer. The pairing of two specialist managers has worked well and adds depth to the company’s management resources and skill set.

The company is clearly seeing opportunities for investment overseas, given the activity so far this year and the announcement that the board wishes to increase the proportion of assets that can be invested in Europe, to a maximum of 65%. This strategy will clearly increase diversification – certainly for investors holding any of the other London-listed renewable energy funds, which tend to have a more local focus.

As we observed recently, investors are increasingly considering a portfolio’s environmental, social and governance (ESG) credentials, and seeking to boost their exposure to funds which exhibit those elements. In our view, TRIG is likely to appeal to these sorts of investors, given its assets contribute towards lowering emissions by over 1m tonnes of CO2 per year. The managers also consider the ‘S’ and ‘G’ aspects of ESG as part of their investment and operations processes. The company Chair Helen Mahy has commented that the board wants investors to know that the company is “run by people who prioritise social responsibility”. It seems fair to assume that the managers are regularly challenged and encouraged by the board to achieve their ESG goals.

For any investor, however, the company’s fundamental attractions remain. Its portfolio diversification serves to reduce volatility for shareholders both in income and NAV. Meanwhile the current premium rating (in absolute terms as well as relative to peers) possibly reflects the company's institutional scale, as well as its high-quality assets and its attractive and diversified income profile.

bull bear
High yield of 5.6%, with potential for NAV preservation from reinvestment of surplus cash High premium to NAV in absolute terms
Diversified exposure to assets, technologies and subsidy regimes which are uncorrelated to equity markets Exposure to UK political risk but in an industry that has political and popular support
Debt being repaid within the subsidy period (amortising) Valuations based on long-term assumptions which may prove optimistic
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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

24 May 2024 Fund Analysis
TRIG’s portfolio continues to evolve, despite equity capital markets being closed…
22 May 2024 Keep It Slightly-unconventional, Stupid
We argue a position in bonds should be diversified with alternatives…
17 Jan 2024 Top of the Pops
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19 Dec 2023 Fund Analysis
TRIG’s shares have dramatically derated over 18 months, yet prospective returns appear more attractive, not less…
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…
09 Aug 2023 Should I stay, or should I go?
Re-appraising the invitation to the bond party…
18 Jul 2023 Fund Analysis
TRIG’s long-term inflation-linkage seems underappreciated by a market fixated on the short term…
13 Apr 2023 Fund Analysis
TRIG’s consistent and inflation-linked returns are underpinned by a high-quality portfolio…
22 Mar 2023 Good vibrations
We identify some sectors with structural discounts we think could close over time…
09 Feb 2023 Here comes the sun
Our analysis suggests renewable energy should be at the core of a well balanced portfolio...
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
20 Dec 2022 Fund Analysis
TRIG’s attractions remain undiminished, yet trade on a discount of 4.5%…
30 Nov 2022 Cry havoc!
Lessons from a year in which an already troubled world was savaged by the dogs of war...
26 Oct 2022 Fund Analysis
We look at TRIG’s key sensitivities to macro factors…
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...
10 Mar 2022 Fund Analysis
TRIG’s managers continue to diversify the portfolio…
09 Mar 2022 Private markets: A closer look at infrastructure and renewables
We examine the £27bn listed Infrastructure and Renewable Energy Infrastructure sectors…
24 Nov 2021 Holding back the tears
While the final text of COP26 fell short of what many had hoped for, the writing is on the wall for fossil fuels and, from an investment perspective, the age of sustainability has only just begun…
14 Jul 2021 Fund Analysis
TRIG is putting ESG considerations at the centre of everything it does…
10 Jun 2021 Green is good!
2021 will see billions dedicated to sustainable initiatives, which brings with it a host of possible investment opportunities...
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…
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…
10 Dec 2020 Fund Analysis
TRIG’s diversified income and strong ESG credentials justify its premium rating…
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?
01 Jul 2020 Fund Analysis
TRIG continues to diversify its portfolio, and has reaffirmed its 2020 dividend target...
09 Oct 2019 Fund Analysis
Seeks to provide investors with long-term, stable dividends from an increasingly diversified portfolio of renewable energy assets…
09 Oct 2019 Bond proxy?
As a replacement or complement for longer duration bonds, listed alternative income funds look an interesting, well… alternative..
22 Mar 2019 Fund Analysis
Seeks to provide investors with long-term, stable dividends whilst preserving the capital value of its investment portfolio...
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…
19 Jul 2018 Fund Analysis
The Renewables Infrastructure Group (TRIG) seeks to provide investors with long-term, stable dividends whilst preserving the capital value of its investment portfolio...
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...
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