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Fund Profile

ThomasLloyd Energy Impact 18 October 2022

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Asian Energy Impact. 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
TLEI’s impact and return objectives make it an interesting addition to the sector…
Overview

ThomasLloyd Energy Impact (LON:TLEI) seeks to generate NAV returns over the medium term of 10-12% net per annum by investing in a portfolio of renewable energy assets in fast-growing and emerging economies in Asia.

The mandate is to invest in renewable energy projects across solar, biomass and wind technologies, as well as projects focussed on transmission infrastructure, energy storage and sustainable fuel production. Aside from the wide range of potential technologies the portfolio may be exposed to, the major difference from the renewable energy investment trust peer group is that the managers will be investing not only in developing markets, but also in construction stage and construction-ready projects which are expected to deliver higher returns and complement purchases of operational assets. It is worth noting that this does not involve development risk as the construction-ready assets are pre-approved.

The company’s initial assets comprise partial shareholdings in two solar operating platforms. Negros Island Solar Power Inc (NISPI) and SolarArise both represent existing operational projects with significant potential to increase capacity through future construction. We note that TLEI has released an RNS regarding the purchase of the remaining 57% interest of SolarArise that it does not yet own, with completion expected in Q4 2022. This takes TLEI to being 66% invested, with other projects at the due diligence stage.

As noted in the Dividend section, TLEI is targeting paying dividends at a rate of 7% of the IPO price per annum in 2024. At launch, the manager and board targeted a dividend yield at the IPO price of 2-3% in the first year, 4-5% in the second year and the full target in the third year.

TLEI’s shares have, largely, traded well so far, at times attracting a significant premium to NAV. Latterly, however, the shares have sold-off and trade at a discount to the adjusted 30/06/2022 NAV of 12.3%, as at 13/10/2022.

Analyst's View

TLEI has launched within a relatively crowded investment trust peer group, yet in our view it occupies a clear niche of its own. ThomasLloyd’s triple return objective embodies TLEI’s differentiating characteristics: attractive financial returns, as well as measurable social and environmental benefits too.

Underpinning the reasoning behind investing in emerging markets in Asia, ThomasLloyd points out that, already, Asia produces more CO2 pollution than Europe and North America combined and yet only 20% of the global investment in renewable energy is in the region. Combine strong economic and high population growth, and such stark numbers makes ThomasLloyd’s zeal in terms of the impact it can make in the region to be entirely understandable.

Aside from the underlying operating performance of the assets, TLEI’s dividend payments depend on the manager’s ability to deploy the capital raised so far. As discussed in the Dividend section, if TLEI achieves its aim for year 2024, then the shares offer a potential dividend yield of in excess of 7%. Based on the current level of quarterly dividend payments of 0.44 cents, the prospective yield this year is 1.95%, based on a share price of 90 cents.

TLEI completed the acquisition of the initial 43% stake in the Indian SolarArise assets by issuing shares in August 2022. The NAV per share after issuance of the shares would have been 102.4 cents. As such, we believe that the current discount might be considered, realistically, to be 12.3%.

Bull

  • High potential returns on offer, including attractive prospective dividend yield
  • Clear and measurable social and environmental impact will resonate with ESG & sustainable investors
  • Differentiated offering, with premium to adjusted NAV in line with peer group

Bear

  • Portfolio still being acquired (albeit SolarArise income is being accrued for benefit of TLEI shareholders)
  • Given portfolio isn’t yet fully-assembled, risks are hard to quantify
  • Emerging markets and construction-ready assets are potentially more risky investments than operating assets in developed markets
Continue to Portfolio

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