TRIG - Renewables Infrastructure Group 10 March 2022

TRIG has recently announced strong results, despite a poor year in terms of wind resource. NAV total returns during 2021 were 9.5%, building on the track record which has seen NAV total returns of 8.3% per annum since IPO.

Wind remains the largest component of the portfolio, but TRIG continues to diversify. During the year TRIG made its first solar investment in Spain and purchased two wind assets in Sweden. The managers expect portfolio diversification to continue to extend as time goes on.

Now comprising 83 investments across 50 wind assets, 32 solar assets and one battery asset with a combined value of c. £2.7bn, TRIG’s portfolio extends across 3000km and six countries. InfraRed’s primary aim in combining these assets is to smooth returns going forward, such that one weather pattern or political regime cannot on its own negatively affect the trust’s ability to continue to pay the strong dividend stream that has so far been achieved since IPO.

Currently, construction stage assets, where TRIG commits to purchase a renewable asset prior to it becoming operational, represent 11% of the Portfolio. The managers are currently consulting with shareholders on extending the investment policy construction and development limit from 15% to 25%.

The board is targeting a dividend of 6.84p for the current financial year ending 31/12/2022, representing an increase of 1.2%. Assuming the target is met, this would equate to a dividend yield of c. 5.1% at current prices.

That TRIG continues to trade at a premium to peers, in our view, reflects the market’s positive sentiment towards TRIG’s diversified underlying Portfolio, and the board’s clear focus and intention on providing a steady, sustainable dividend into the future.

The UK and Republic of Ireland represents a total of 61% by value, which means it has tended to dominate the Performance of the portfolio but, as the managers continue to make investments outside of this area, the benefits of diversification will increasingly be felt. We believe shareholders should welcome the consultation for TRIG to invest more through construction stage assets. Aside from hopefully offering a higher IRR, this will also enable further diversification, and pave the way for repowering and other on-site development as the portfolio matures.

In our view, appetite for relatively consistent, higher yielding investments with a link to inflation will persist. The threat of investor interest in TRIG being eroded by bond yields rising is a consideration but, in our view, the spread between what bonds offer and TRIG’s Dividend currently provides plenty of insulation. With total returns linked to inflation, should inflation prove more persistent than that assumed in the valuation of TRIG’s assets, or wholesale electricity prices remain elevated, there is clear potential for the NAV to increase (all things being equal).

TRIG’s consistency, as well as the high income component of the returns, makes it a potentially useful complement to equity portfolios.