NextEnergy Renewables 15 February 2021
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by NextEnergy Renewables. 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.
To provide investors with regular income and capital appreciation through a diversified portfolio of private investment vehicles and direct investments (including by way of co-investments) which predominantly invest in renewable energy and/or energy transition technologies, assets and projects).
Michael Bonte-Friedheim & Aldo Beolchini
Association of InvestmentCompanies (AIC) Sector
Renewable Energy Infrastructure
12 Mo Yield
Target Gross Assets
(starting NAV per share expectedto be 98 pence)
Est Ongoing Charge ex performancefee
Premium (on issue)
NextEnergy Renewables (NREN) is a proposed investment company to be listed on the London Stock Exchange which will invest globally across the renewables energy space, investing in private funds and co-investments in order to offer a higher return potential than the existing listed renewables funds, as we discuss in the performance section.
NREN will target a 9-11% NAV total return, from a portfolio split roughly equally between private funds run by the manager NextEnergy Capital, private funds run by third parties and co-investments with those third parties in attractive assets or portfolios. The manager already has a seed portfolio of ten funds lined up, while co-investments are expected to follow as opportunities arise.
The targeted return includes a quarterly dividend worth 5.5p which is expected to grow each year. The dividend for the period from launch to December 2021 will be 3p.
NEC has a team of 200 professionals whose experience in the sector will be brought to bear on investment selection. While NEC specializes in solar power, NREN will invest in wind power, battery storage and emerging technologies such as hydrogen via third party managers who specialise in these assets.
As well as the potentially superior returns, NREN will be investing in early-stage assets, meaning it will be contributing to increase the renewables energy capacity in the global economy, as we discuss in the ESG section.
NREN is seeking to raise up to £300m, with a further placing programme enabling the manager to expand the size of the trust further. The intention is to use a revolving credit facility to manage liquidity when making new investments before equity can be raised. The closing date for the offer is Early March and the shares are expected to begin trading shortly after.
We think NREN is a potentially exciting addition to the renewables space, offering the ability to invest in private funds which would usually be out of reach of the ordinary investor. The high return target is attractive if it can be achieved, as the expected returns on the operational funds in the seed portfolio indicate it may (see portfolio section). Meanwhile the diversification in the portfolio is attractive in itself, and addresses some issues of concern to investors in renewable trusts. First, the UK market is becoming increasingly crowded, with returns potentially eroding as a result. Theoretically, NREN’s global remit should give it a better chance of sustaining high returns and grow the size of its portfolio. Secondly, the relatively short time horizon for the private funds and the strategy of turning over investments every 7 to 10 years should limit concerns about how long life assets are valued without any testing of the market.
Furthermore we think the ESG story is strong. NREN will invest in early stage projects and assets, meaning it will be helping to grow the pipeline of renewables energy supply rather than investing in mature assets for which there are no shortage of institutional or public market investors. Shares will be issued at a premium of 2% to the initial NAV, which compares to the renewables infrastructure average premium of 12%. As far as risks go, deployment risk is one to highlight. The strategy will require significant activity to identify suitable new third-party investments and co-investments, although as we discuss in the Management section, NEC has extensive resources to do this and the guaranteed seed portfolio will allow it to invest immediately a significant part of the IPO proceeds.
|Strong secular growth trend to renewable energy should lead to broad pipeline of potential investments
||Underlying investments will be liquid and structure is complex|
|Higher potential returns from investing in private funds
||Manager’s area of expertise is solar, although external specialists will be hired for other asset classes
|Global, flexible remit means returns potentially sustainable in the long run
||Investment portfolio has not yet been assembled yet, with some uncertainty over third party investments to be made