Fund Profile

Greencoat UK Wind 19 September 2019

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Greencoat UK Wind. 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

Greencoat UK Wind (UKW) provides a pure investment exposure to UK wind farms, with the aim of delivering a high, RPI linked, income return for shareholders whilst maintaining capital value in real terms.

We have recently launched an Environmental, Social & Governance (ESG) analysis section as part of our standard fund profiles. From an ESG perspective, UKW clearly ticks the “environment” box in that investing in UKW provides the long-term capital which enables an increase in renewable energy provision in the UK, and the shift to a lower carbon economy. The managers estimate UKW prevents over 1m tonnes of CO2 per annum from being emitted with thermal generation being the alternative. We calculate that this is equivalent to 0.8kg per share. Setting this into context, a flight from London to Milan emits 181kg of CO2 (Source: Atmosfair). A £10k investment in UKW is equivalent to 5.6 tonnes of CO2 “prevented” per year.

In other respects, Greencoat as manager is clearly a keen proponent of ESG, and aware of its responsibilities therein. Greencoat were signatories to the UN-supported Principles for Responsible Investment (PRI) in 2016 and provides a lot of detail of how it incorporates ESG issues in its decision-making process and asset management.

Wind is a resource that the UK has plenty of. In 2018 it was a significant contributor to the UK’s electricity supply – meeting 17% of the country’s total demand (renewables as a whole contributed 30%). As such, it is likely to remain one of the central planks of the UK’s strategy to achieve a lower carbon economy. Greencoat UK Wind (UKW) currently owns a portfolio of 35 wind farms around the UK, which together generate enough electricity to power 940,000 homes and is the largest renewable infrastructure fund listed on the LSE with net assets of £1.9bn.

UKW remains amongst the best performing of the renewable infrastructure funds since it launched in 2013. Since launch, the company has delivered strong total returns comprising the 6p dividend, which has risen with RPI, and capital growth of 23.9%. In share price terms, shareholders have enjoyed a total return of 96.8% in just over six years. Despite the considerably lower volatility that the company exhibits, on a NAV total return basis UKW has outperformed the FTSE All Share Index total return since launch by over 30 percentage points.

UKW’s main objective is to pay a high dividend to shareholders that is linked to inflation (RPI) and to preserve capital after taking inflation into account. The trust has a target for 2019 of 6.94p per share, representing a 2.66% increase over the prior year, and in line with RPI for December 2018. This year so far, UKW has paid two dividends totalling 3.47p which is in line with the target. Since launch (and based on the dividend target for 2019) the dividend has risen by 2.95% p.a., which compares to the retail prices index of 2.6% p.a. over the same period. At the current share price, the prospective yield is 5.0%.

Around 50% of the company’s cashflows are directly index-linked, with the remainder being exposed to electricity prices. As such, electricity prices, which are assumed to have a correlation to inflation, affect UKW’s ability to grow the NAV by RPI in the long term. Given the high dividend cover of 1.7x on average, the company expects to be able to continue to grow the dividend by RPI on an annual basis over the long term.

UKW has been growing strongly, and during 2019 so far has invested in excess of £600m funded from equity issuance and re-investing surplus cashflows supplemented by debt facilities. Net assets are now £1.9bn. Shareholders benefit from this growth in the form of a declining OCF, which has been coming down rapidly and through operational economies of scale within the business. As at the end of 2018, the OCF was 1.13%, a reduction from the 1.24% level at the end of 2017, and 1.46% at the time of initially listing. The published forecast OCF from the managers for 2019 was 1.08% at the beginning of the year.

Many of the listed 'alternative income' funds continue to trade at significant premiums – and UKW is no exception on a current premium to NAV of 13%.

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2022 Kepler Alternative Income Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for alternative income... Find out more

Fund History

11 May 2022 Catch a tiger by the tail
As inflation bites harder than it has for decades, we consider the best ways for investors to hang on to their capital...
29 Apr 2022 Flash update: Greencoat UK Wind
Reporting performance for the first quarter of 2022, UKW has announced a NAV which represents a 13.2% total return for the 3 months to 31/03/2022...
22 Mar 2022 Fund Analysis
UKW is in a strong position to capture the benefit of current high energy prices…
09 Mar 2022 Private markets: A closer look at infrastructure and renewables
We examine the £27bn listed Infrastructure and Renewable Energy Infrastructure sectors…
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...
03 Nov 2021 Don't fear the reaper
With market direction hard to call, we consider the case for taking a long-term view in the investment trust sector…
10 Jun 2021 Green is good!
2021 will see billions dedicated to sustainable initiatives, which brings with it a host of possible investment opportunities...
02 Jun 2021 Fund Analysis
UKW’s size and robust model means we think it deserves to trade at a premium to peers…
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…
09 Mar 2021 Fund Analysis
2020 has proved UKW’s resilience, which continues to target an inflation linked dividend…
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…
26 Nov 2020 Fund Analysis
2020 has proved UKW’s resilience, but is now better value in terms of premium...
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?
23 Apr 2020 Sucker punch
Two of our analysts debate the merits of equity income and alternative income trusts at this point in time...
12 Mar 2020 The importance of buying earners*
Our analysis shows that the impact of dividend contributions on long term returns is anything but trivial...
04 Mar 2020 Fund Analysis
Recent de-rating, but prospects appear undimmed…
16 Oct 2019 Life on Mars: could inflation take us back to the '70s?
We discuss two potential catalysts for inflation - and the assets that could offer a hedge against it...
09 Oct 2019 Bond proxy?
As a replacement or complement for longer duration bonds, listed alternative income funds look an interesting, well… alternative..
19 Sep 2019 Rebels no more...
Climate change and sustainability is now mainstream - so we are adding ESG analysis into all of our fund research…
19 Sep 2019 Fund Analysis
UKW invests in operating wind farms, aiming to provide an RPI-linked dividend and preserve the real value of the NAV…
19 Mar 2019 Electric Dreams: The future of energy
At our first public event, three fund managers gave their insights on the future of energy and the investment opportunities in this space...
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…
28 Feb 2019 Fund Analysis
Greencoat UK Wind invests in operating wind farms, aiming to provide an RPI-linked dividend and preserve the real value of the NAV...
24 Dec 2018 Why did the chicken cross the road?
Because he was so bored of reading newspapers devoted entirely to Brexit he was hoping he’d be hit by a truck.
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 A new dawn
As the sun sets on fossil fuels, we examine the opportunities for investors in the burgeoning listed renewable infrastructure sector...
04 Apr 2018 Electric dreams
We examine the growing shift toward electrical power across a broad range of industries, and the implications for investment trusts with exposure to them...
04 Apr 2018 Fund Analysis
Aims to provide investors with an annual dividend that increases in line with RPI inflation while preserving the real value of the NAV
View all

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