William Heathcoat Amory
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Updated 29 Apr 2022
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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.

Greencoat UK Wind (UKW) stands out from the peer group as the only pure play wind trust, exposed solely to the UK. It has a relatively simple model, which aims to invest in wind farms at attractive rates of return, and over time use around two-thirds of cashflows to pay a dividend that rises with inflation each year, as well as re-invest the remaining third of annual cashflows to preserve the capital base in real terms. In an average year, this allows for a strong level of dividend cover. And it is this dividend cover that allows the managers to run an ‘un-hedged’ exposure to power prices, yet still be confident of hitting the board’s dividend target.

At times this has looked to be a potential disadvantage (when power prices crashed in the early stages of the pandemic for example). However, UKW has been a significant beneficiary of the very high wholesale electricity prices we are currently experiencing. This benefit has come through excess cashflows at roughly twice the “model” rate (3p net of depreciation for the quarter), but also through a 5.2% NAV increase as a result of higher forward power prices (for the period 2022-2025) increasing the value of the trust’s assets.

Rising assumptions for 2022 inflation (but no further out) has also led to a significant 4.5% increase in NAV. Cumulatively, and when added together this has resulted in a very strong NAV, which will be welcomed by shareholders. It also provides credence to the manager’s approach, which even before this announcement had provided the strongest NAV total returns in the peer group.

UKW’s dividend target of 7.72p for 2022 offers shareholders a prospective dividend yield of 4.85%. At the current share price of 159p, the shares trade at a premium to NAV of 6.5%, which compares to the average over the last five years of 11.8% (Source: Morningstar).

Past performance is not a reliable indicator of future results

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