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)’s managers continue to build a formidable portfolio of wind farms in the UK. Whilst the market for wind farms in the UK is currently competitive, the team have been able to raise and deploy significant amounts of capital during the last financial year – all at rates of return that we think should enable the trust to meet its total return objective of 8-9% net of fees.

Increased size brings efficiencies in many ways. As we discuss in Charges, the OCF is now sub 1% per annum. Size also allows operational efficiencies, but perhaps most importantly allows the trust to buy much larger assets. UKW’s increased scale allows it to invest in the burgeoning market for offshore wind farms more effectively, which currently represents 30% of the portfolio.

UKW has twin aims of delivering a high, RPI-linked income return for shareholders whilst maintaining capital value in real terms. 2020 has shown the strength and resilience of UKW’s relatively simple model, with the trust generating a covered dividend and continuing to state its ambition to grow the dividend in line with inflation. At the current price, we estimate that the prospective yield is 5.5%. Excluding income, the NAV has grown from launch at 98p to 120.4p, growth of 22.9% which compares with RPI growth of 18.8%.

UKW has historically traded at a significant premium to the peer group average. UKW now trades on a premium to NAV of 7.4%, below the five-year average for the trust and relative to the weighted average for the peer group of c. 10%.

Analyst's View

2020 has shown UKW’s resilience. Despite employing modest gearing to achieve its objectives, which clearly presents some risks, the trust has handled the unique circumstances the year has brought and continued to pay a covered dividend. Significant falls to wholesale electricity prices meant that dividend cover was 1.3x, compared to the manager’s typical budget of 1.7x in a ‘normal’ year. The managers have restated their ambition to continue to pay a dividend rising with inflation.

UKW’s income stream is in our view attractive in comparison to other sources, both in terms of its extent (yield of 5.5% at the current share price) but also because UKW so clearly fits within a sustainability theme. In buying wind farms, UKW is contributing to the UK’s efforts to achieve ‘net zero’ by enabling developers to recycle capital into new projects.

Looking back over past years, UKW’s shares have offered valuable diversification properties to investors. The shares have demonstrated low beta, and significantly lower share price drawdown than the FTSE All Share, which has helped the shares have a volatility significantly less than the broader equity market. At the same time, they have outperformed the wider market by quite a margin since IPO in 2013.

The covered dividend and link with inflation, as well as the OCF now being below 1%, means that UKW has a strong entrenched position in the sector. UKW’s lower premium to NAV than the peer group average might prove an attractive entry point on a relative basis.

BULL
BEAR
High dividend yield, well covered by cash
Premium to NAV (although currently below peer group average)
Continued commitment to RPI-linked dividend growth
Gearing always exacerbates underlying asset valuation movements
Uncorrelated assets
Valuations based on long-term assumptions which may (or may not) prove optimistic
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2022 Kepler Alternative Income Rated Fund

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

Fund History

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?
As discounts reach historically narrow levels across the board – 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 seems to beat every other sector hands down – in both up and down markets – 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 - so we are adding 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…
19 Mar 2019 Electric Dreams: The future of energy
At our first public event, three fund managers gave their insights on the future of energy and the investment opportunities in this space...
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...
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.
15 Aug 2018 The income edge
Last year saw investment trusts soar in popularity among both retail investors and wealth managers. We examine why this has happened, as well as the structural advantages of investment trusts for income-hungry investors...
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...
04 Apr 2018 Electric dreams
We examine the growing shift toward electrical power across a broad range of industries, and the implications for investment trusts with exposure to them...
04 Apr 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
View all

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