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Fund Profile

TRIG - Renewables Infrastructure Group 19 December 2023

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
TRIG’s shares have dramatically derated over 18 months, yet prospective returns appear more attractive, not less…
Overview

The Renewables Infrastructure Group (TRIG) has suffered quite a derating over what is rather a short period of time. As we illustrate in the Discount section, having traded consistently at a premium to NAV north of 10% only 18 months ago, the shares now trade at a discount to NAV of 16%, a swing of nearly 30%. Stepping back—what can we make of this significant change? Is this one of those relatively rare moments when there is genuine, tangible value on offer?

Interest rates have risen dramatically over the last 18 months, meaning that TRIG’s dividend yield is less attractive on a relative basis. The current dividend yield of 6.6% offers a slimmer 2% premium over savings rates than historically. However, as we illustrate in the Portfolio section, those who dashed for cash when interest rates started rising, have actually seen significant losses on their capital in real terms. By contrast, with 62% of TRIG’s 12-month revenues directly linked to inflation, its cashflows should provide strong inflation protection.

As of 30/09/2023, if market-implied inflation expectations were to be reflected in TRIG's UK inflation assumptions, portfolio-wide return expectations would increase by c. 0.6% per annum. This means that TRIG’s future returns can be thought of as not only a high nominal income stream, but also one that is real, and that will grow over time with inflation.

In absolute terms, TRIG’s prospective total returns are significantly more attractive than they were 18 months ago and now stand in line with long-term total returns from equities. Taking the weighted average discount rate of 8.1%, deducting ongoing charges of c 0.95% per annum (see Charges), investors have prospective NAV total returns of c. 7.1% per annum.

Analyst's View

In our view, despite the share price derating, nothing has changed in terms of the ability of TRIG to continue to deliver attractive returns to shareholders. The combination of a high degree of fixed revenues, strong inflation correlation, and power price forecasts that are partly insulated from further falls (thanks to windfall taxes), serves to reduce the risks arising from a volatile macro-outlook.

As we have seen so far, the interplay between inflation and interest rates provides something of an inherent hedge. Whilst TRIG has been a beneficiary of higher inflation, it has conservative future inflation assumptions underpinning the NAV. Any significant fall in inflation is likely to be counterbalanced with interest rates falling too, with a resulting impact on the portfolio discount rate.

The increases in the discount rate that we have seen over the past 18 months have raised the expected net IRR of TRIG’s portfolio, which at 7.1% per annum is attractive in the context of historic long-term equity returns. Given the diversified portfolio which minimises specific risks and the current discount to NAV, long-term investors may decide that the market is overly pessimistic about TRIG’s prospects.

In the immediate term, given the forecast dividend cover of 1.6x for the current financial year, the trust is in the strong position of having surplus cash to deploy. However, in the immediate term, as we discuss in the Gearing section, it would appear prudent to prioritise paying down relatively expensive floating rate debt, before considering share buybacks or raising the dividend further.

Bull

  • A high yield of 6.6%, 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 has been positive, building on the historical stability of TRIG’s cash flows

Bear

  • TRIG is likely to use surplus capital to repay debt, rather than buy shares back
  • Discount to NAV may persist for some time
  • 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

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...
View all

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