Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by US Solar Fund. 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
USF offers a high and dependable yield from a portfolio with a strong ESG rationale…
Overview

US Solar Fund (USF) owns a mature portfolio of fully operational US solar plants and generates a stable income by fixing out the price it receives for power far into the future. USF is the only AIC trust to solely focus on the huge and growing US solar industry and is managed by New Energy Solar Manager (NESM) a specialist in the sector, who are backed by a board with extensive experience in the sector and related industries (see Management).

USF targets a yield of 5.5% on the IPO price, equivalent to 5.5 cents per share. This is, since the start of 2021, being achieved on an ongoing basis, with the portfolio becoming fully operational in November 2020. The manager is looking for future growth opportunities in the US utility scale solar market which may include battery storage and have $38m of investable cash plus $40m of undrawn debt facilities. Gearing is below target and slightly below that of the peer group, as we discuss in the Gearing section.

The trust’s portfolio is spread across four states in the US, as discussed under Portfolio, allowing for diversity of climate and weather systems, supporting steady power production. Prices are agreed with offtakers for the power via Power Purchase Agreements (PPAs), fixed out for a weighted average of 14.6 years at 30 September 2021. While there is some volatility for sterling investors via the currency, these two features should contribute to a steady, predictable income stream from a sector with bipartisan political support and a dramatic growth trajectory. USF yields 5.7% on the current share price with its shares trading on a small premium of 2.1% to NAV.

Analyst's View

We think investing in solar power is highly attractive for a number of reasons. On ESG grounds alone, solar is an important contributor to our transition away from fossil fuels. USF has already acquired and / or constructed 42 solar projects, all of which are now operational in the portfolio. Including those projects, USF’s investment manager has invested across 57 utility scale solar projects over the last seven years and its pipeline continues to grow. The Company is reviewing new opportunities from its pipeline (4,300MWDC with an aggregate value of approximately $4.2 billion in cash equity value at 30 Sept). USF may also consider battery storage opportunities that are complementary to existing assets or part of potential new acquisitions. USF offers a way to contribute to the growth of solar while generating a stable yield for the long term. The current yield is highly attractive versus equities and bonds with the likelihood of good medium to long term stability via the PPAs.

As discussed under Dividend, USF offers a modestly lower headline yield than its solar peers at the moment (5.7% at the time of writing). In exchange for giving up a little yield, investors achieve greater long-term stability of underlying revenue, as the trust’s cash flows are contracted with fixed power prices further into the future, at a weighted average of 14.6 years. In contrast, USF’s peers are more exposed to the volatility of short-term power prices, as well as to those in the medium-term insofar as they hedge over that time horizon. As such we believe USF may be seen by investors as more of a fire and forget portfolio. That said, long-term power-price expectations will impact the NAV to some extent, given the extremely long useful life of the portfolio (more than 30 years on average from launch) is around twice the weighted average PPA length.

bull bear
High yield versus equities and bonds supported by highly predictable dollar cashflows
Modest potential for capital growth
Specialist knowledge in the asset manager and board
Starting yield lower than peers
Makes a contribution to the transition away from fossil fuels in the world’s largest economy
Sterling investors will be exposed to dollar movements
Continue to Portfolio

Fund History

24 Mar 2022 Results analysis: US Solar Fund
USF offers a high dividend from cashflows fixed far into the future…
09 Mar 2022 Private markets: A closer look at infrastructure and renewables
We examine the £27bn listed Infrastructure and Renewable Energy Infrastructure sectors…
02 Feb 2022 Fund Analysis
USF offers a high and dependable yield from a portfolio with a strong ESG rationale…
01 Dec 2021 How to protect your portfolio from inflation
We highlight trusts which could appeal in an environment where 'transient' inflation is here to stay...
20 Sep 2021 Results analysis: US Solar Fund
USF is now paying cash-covered dividends in line with its fully operational target of 5.5 cents per share...
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…
16 Mar 2021 Results analysis: US Solar Fund
We look at the recent results announcement from USF, and how the trust is poised to offer both high levels of income and capital growth in 2021…
17 Feb 2021 Jungle Fever
Soaring interest in ESG has exciting implications, but risks pushing some stocks to distinctly unsustainable valuations...
10 Dec 2020 Fund Analysis
USF’s portfolio is now fully operational and the trust is on track to commence the targeted 5.5 cent dividend in 2021…
16 Sep 2020 Results analysis: US Solar Fund
US Solar Fund has made significant progress with its portfolio and expects dividends to be fully covered by operational cashflow from now on…
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…
10 Jun 2020 Fund Analysis
USFP invests and operates solar power projects in North America...
View all

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