TRIG - Renewables Infrastructure Group 22 March 2019

The Renewables Infrastructure Group (TRIG) differentiates itself from its competitors in the listed renewable infrastructure universe in that it aims to provide a diversified exposure to renewable energy assets.

TRIG owns different technologies (wind, solar, battery storage) across several countries (UK, Republic of Ireland, France, Sweden). As a whole, these assets offer attractive long-term cashflows, elements of which are linked to inflation. As has proved to be the case during 2018, the diversification benefits of having a broad portfolio – smoothing cashflows and reducing risks to specific factors – have started to prove themselves.

TRIG is a c.£1.5bn Guernsey-domiciled company, listed on the LSE and a member of the FTSE 250. It has investments in 63 assets in four different regulatory zones, with an aggregate capacity of 1,323MW - enough electricity for the equivalent of around 700,000 UK homes, or 0.6% of the electricity generated in the UK. We understand that this is equivalent to around 550,000 tons of CO₂ saved per year.

Currently the company has the majority of its exposure to wind farms, which represents 85% of the portfolio by value when fully built out. Of this, c.5% is invested in wind farms located offshore which the company is now seeking a mandate to increase exposure past the existing 20% limit. At launch, solar made up only 10% of the company’s assets, but now constitutes 14%.

Over 2018 TRIG increased its geographic diversification with investments in the Republic of Ireland, France and Sweden. In January 2017, 17% of TRIG portfolio was invested outside the UK. This had increased to 38% by March 2019. Investing in more assets outside the UK has the benefit of contributing towards the Company’s diversification of weather systems, regulations and electricity markets, whilst offering mitigation against localised risks.

TRIG’s dividend has increased each year from launch at an average compound annual rate of 1.8% pa. Each year the board set a dividend target for the following year, payable in four equal installments. The current dividend target is 6.64p per share, equivalent to a yield at the current price of 5.6% and representing an increase of 2.2% from 2018.

In NAV total return terms, the company continues to deliver. In relative terms, it has performed in-line with the peer group, but is outperforming the FTSE All Share index on a total return basis since launch, with considerably less volatility. Since its initial public offer (to 31^st December 2018), the company has delivered NAV total returns of 7.8% per annum. This figure doesn’t include the uplift to NAV from the recent extension of the assumed life of the wind farm assets. In share price terms it has performed even better.

The company currently has long-term gearing of approximately 33% of portfolio enterprise value, all of which is all held at the project level. The company does sometimes have additional short-term borrowings at the fund level under its Revolving Acquisition Facility (RAF), currently £222m drawn. TRIG’s fund-raising to repay the RAF is in progress which, along with the proceeds from a refinancing of some project investments is intended to repay the RAF. Assuming this is successful, overall gearing is estimated to be c. 35% of portfolio enterprise value, which 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.

TRIG has two managers who work together to achieve the company’s aims: InfraRed Capital Partners, which is responsible for the financial management, sourcing and executing of new investments; and Renewable Energy Systems (RES), which has a dedicated team of more than 40 providing portfolio-level operations management.

The company has enjoyed robust demand for its shares, and according to data from Numis has traded on an average premium to NAV over the last year of 4.4%. At the current premium of c 5%, the shares trade at a discount to the sector average premium of c 9%.

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 in this relatively new space for listed funds has worked well and adds depth to the management resources and skill set.

The structural element of the gearing is of a project-finance type, which has fixed interest rates and amortises over the life of the subsidy regime which is a discipline not adhered to by all in the peer group and means the company is effectively de-risking over time.

Portfolio diversification - with the company owning both wind and solar assets, as well as being exposed to four different regulatory and pricing regimes – will serve to reduce volatility for shareholders both in income and NAV. The current premium is less stretched than for the average for the peer group. With an attractive and diversified income profile, any reduction in the premium would look like an opportunity.