TRIG - Renewables Infrastructure Group 03 December 2024

The Renewables Infrastructure Group (TRIG) has a portfolio of institutional quality assets of significant size and scale, diversified geographically in Europe and by technology. The acquisition of Fig Power (in addition to the company’s 1GW development pipeline) earlier this year means a potentially transformational investment in battery storage over time, which further diversifies revenue streams, as well as being a potentially high-returning investment in its own right (see Portfolio section).

TRIG’s diversified portfolio, allied to the fact that 67% of projected portfolio revenues over the next ten years have a fixed price per MWh generated, gives it financial resilience. A key determinant of TRIG’s returns is operational: the portfolio’s ability to generate electricity. With lower wind resource across Europe, which has affected the whole sector, but compounded by specific faults at two of TRIG’s larger assets in the UK, 2024 has been a difficult year. A result is that short-term gearing is expected to be slightly higher than projected in the 2024 interim results (see Gearing), and expectations that dividend cover will reduce (see Dividend). The managers expect that cover will return to the long-term average of 1.2× to 1.3× from 2025.

TRIG has faced operational challenges this year. At the same time, the discount has widened dramatically – a result of rises in interest rates and lower power prices. The ability of the portfolio to continue to deliver attractive returns has not fundamentally changed, and the dividend remains cash covered. Surplus cash flows, as well as refinancing activity expected in the future, will give TRIG firepower to optimise capital allocation, which may include accretive buybacks, further debt repayment or reinvestment in new assets as well as enhance existing projects.

At times the underlying fundamentals of listed companies can differ, sometimes markedly, with share price performance. In TRIG’s case, we think this is one of those times. As we discuss in the Discount section, TRIG (as well as the entire peer group) has seen the share price fall, even though the underlying performance does not suggest anything other than a slight softening of revenues this year. Certainly, with interest rates having risen, the relative attractions of TRIG’s offering may have taken a hit over the short term. However, we note that TRIG’s managers have given a clear expectation that whilst dividend cover this year will be lower than budgeted, they expect cover to rebound next year (see Dividend section).

Short term, the board is prioritising paying down floating-rate debt and share buybacks, which we think will be highly accretive at the current discount to NAV (see Discount section). Unlike fixed income, TRIG’s portfolio stands to benefit from any persistent inflation. Added to which, TRIG’s managers have the potential to increase returns through their capital allocation decisions, including the potential to further diversify through the 1GW development pipeline. Disposal activity, which has perhaps been slower than hoped, has so far been achieved at valuations in excess of book value, boosting NAV but also providing evidence that TRIG’s NAV may be conservative.

For long-term investors, TRIG’s cautious approach to portfolio construction, seeking to minimise specific risks, its inherent link to inflation and the portfolio discount rate (before fees) of 8.3% might be considered an attractive risk-adjusted return. Any narrowing of the discount would serve as an accelerant to shareholder returns, over and above the NAV returns generated.