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.
- US Solar Fund (USF) has reported its first results covering a full year of operations for the total portfolio. In the year ending 31/12/2021, the trust paid dividends of 5.5 cents a share, in line with the target declared at launch.
- Additionally, the NAV rose 1% over the year to $0.975, boosted by useful life extensions for a number of assets, a reduction in the discount rates as market interest rates fell, and an uplift in the valuation of USF’s interest in and option over the MS2 project in California.
- During the year the trust bought a 25% stake in MS2; in February 2022 it exercised its option to buy a further 25%, the two transactions adding 100MWDC to the portfolio and bringing the portfolio to 42 assets across four US states totalling 543MWDC.
- USF raised $132m in an initial issue of equity in May, $92m of which was used to refinance the debt associated with the Heelstone Portfolio. This more than halved the effective interest rate paid on that debt from 6.75% to below 3% and reduced USF’s gearing to 38.4% on an LTV basis, comfortably below the 50% long-term target and giving scope for growing the portfolio.
- As well as $16m cash, the manager also has an undrawn revolving credit facility of $40m which could be used to purchase new assets. It reports a strong pipeline of potential acquisitions, and has been increasingly looking for opportunities with an energy storage component, as well as opportunities to add value to existing holdings by retrofitting battery storage.
- Chairman Gill Nott said: “2021 was an exciting year for the Company as it continued to deliver on its targets. The board and the investment manager remain focused on delivering steady cash flows from the existing portfolio of assets, whilst looking for suitable opportunities in solar and storage to grow the company.”
This was a promising year for US Solar Fund (USF), with the portfolio fully operational and delivering the dividends targeted at launch. The refinancing has put the trust in an advantageous position for the future, while it has cash on hand to finance further expansion. We think that expanding into battery storage should offer a diversified source of resilient cashflows. It also burnishes the ESG credentials of the trust: expanding the use of renewables to power the grid will likely require expanding battery capacity.
USF offers an attractive prospective yield of 5.9% on the current share price (as of 23/03/2022). This yield is relatively secure thanks to the policy of fixing out the majority of the trust’s cash flows – at a weighted average of 14.4 years. As a consequence of this stability shareholders do give up exposure to the near term power price. Although this protects the trust from near term volatility including downward movements, it also means that USF will not see uplift from short term movements. USF’s peers largely do have exposure to short- and medium-term power price fluctuations, and some of them have seen a rise in income and NAV via recent increases in wholesale power prices. We think this may explain USF’s wider discount than peers. However, for investors looking to lock in long-term income, the discount has created an opportunity to do so at a higher initial yield.
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 and contributing to the shift to renewable energy sources. While there are four solar power specialists in the AIC Renewable Energy Infrastructure sector, the three others are exposed to a range of markets and regulatory environments and have limited if any US exposure, whereas USF is the only one to focus exclusively on the US. This is a huge market, with 121GWDC of installed capacity reached in 2021. USF’s portfolio offers geographical diversification in various climactic zones across this country, which should contribute to the stability of production. USF’s manager, New Energy Solar Manager, is a specialist in this field and the trust benefits from its network of contracts across the industry when it comes to negotiating deals. We think USF offers an attractively high and stable yield from a differentiated exposure to the important solar power industry.
Login to read the full article...
Kepler Trust Intelligence provides research and information for professional and private investors. In order to ensure that we provide you with the right kind of content, and to ensure that the content we provide is compliant, you need to tell us what type of investor you are.Continue