Fund Profile

TRIG - Renewables Infrastructure Group 20 December 2022

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) might be considered the bellwether for the renewable energy infrastructure peer group, having a portfolio of assets worth c. £3.7bn and offering exposure across different types of renewable energy technology located in the UK and Europe. TRIG has recently reported its 30/09/2022 NAV, adjusted for the UK government’s subsequently-announced windfall tax on electricity revenues. Previously, the tax has been a source of uncertainty. With the updated NAV having been published, the share price has remained flat and, as a result, TRIG’s shares trade on a c. 4.5% discount.

TRIG’s discount rate, effectively the gross expected return from the portfolio, has been moved up to 7.1%, as at 30/09/2022. This compares to 20-year UK gilt yields at c. 3.75%, as at 14/12/2022, implying an equity risk premium of c. 3.4%. The shares yield 5.3%. Both of these statistics illustrate the attractions of TRIG’s shares for long-term investors on a risk-adjusted basis.

The UK’s windfall tax, i.e. the Electricity Generator Levy, has negatively impacted expected income, but only for the 2023 and 2024 calendar years; TRIG’s expectations for UK power prices post 2026 are below the £75/MWh level. We note that TRIG’s sensitivity to changes in the expected level of power prices down to £75/MWh over the next couple of years is now significantly reduced as a consequence of the Electricity Generator Levy. As such, from the perspective of power price exposure, TRIG might be seen as having been somewhat de-risked as a result of the levy.

Analyst's View

Whilst the long-term trajectory of TRIG’s NAV has, historically, been relatively stable (see Performance section), as we all know past performance is not necessarily a guide to the future. There are many inputs that influence TRIG’s NAV, but rarely have such big changes to assumptions been required over such a short period of time. As we highlighted in a recent note, TRIG is subject to the influence of three key variables on its NAV and returns: power prices, inflation and discount rates. Since then, and as we discuss in the Portfolio section, the windfall tax has negatively affected the NAV, as have rising discount rates. However, the effect has been offset by the positive effect of inflation and higher short-term power prices.

Long-term interest rates seem to have stabilised and, as we note above, TRIG’s sensitivity to short-term power price movements has now, arguably, reduced. As such, inflation looks to be the most important influence on returns over the short term. As at 30/06/2022, over the next ten years 51% of TRIG’s revenues are directly linked to inflation. Inflation has been consistently higher than central banks have forecast and, given TRIG’s sharply-reduced inflation expectations for 2023, we think there is clearly potential for further NAV increases if the current high inflation environment proves persistent.

The next scheduled NAV date for TRIG will be 31/12/2022, published in mid-February 2023. As we discuss in the Discount section, the share price has fallen over the short term. Historically, TRIG has traded on a consistent premium to NAV, so the 4.5% discount to NAV may be a potential opportunity for long-term investors. In our view, the diversification and quality of cash flows underpinning the income component of TRIG’s returns continue to make it a useful complement to equity portfolios.

Bull

  • A high yield of 5.4%, with the potential for NAV growth from reinvestment of surplus cash
  • Has a pure exposure to diversified assets, technologies and subsidy regimes which are uncorrelated to equity markets, and scores well on ESG matters
  • Inflation-link likely to be a positive, counterbalancing any further rise in discount rates

Bear

  • Long-term government bonds no longer looking unattractive for investors
  • Hard to rule out further government intervention in energy markets
  • Dividend cover not as high as that of funds which are not amortising, i.e. paying down debt
Continue to Portfolio
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
We reveal the winners of our investment trust ratings for 2024…
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
Viewing investment trust discounts as a problem ignores the crucial role they play in keeping the sector on an even keel...
09 Aug 2023 Should I stay, or should I go?
Re-appraising the invitation to the bond party…
19 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?
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…
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 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?
01 Jul 2020 Fund Analysis
TRIG continues to diversify its portfolio, and has reaffirmed its 2020 dividend target...
09 Oct 2019 Bond proxy?
As a replacement or complement for longer duration bonds, listed alternative income funds look an interesting, well… alternative..
09 Oct 2019 Fund Analysis
Seeks to provide investors with long-term, stable dividends from an increasingly diversified portfolio of renewable energy assets…
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…
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 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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