Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
To invest mostly in operating UK wind farms with the aim to provide investors with an annual dividend that increases in line with RPI inflation while preserving the capital value of its investment portfolio.
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Thanks for your analysis. I find it hard to draw any conclusions without an explanation of why the numbers are what they are. Why did the cash income drop so much in the last quarter, if it's not low wind? Could it be a big fall in prices? I don't think UKW sells much (or any?) of its output on the spot market. I think the prices are all either RPI-linked or on PPAs (power purchase agreements) lasting about 3 years. Did some big PPAs suddenly come to an end? Or is there a big time lag between UKW providing the power and receiving payment, in which case maybe the drop relates to the poor wind in Q2? I don't know.
Where does the depreciation number come from? The NAV is calculated by a DCF model, and I suspect the depreciation number is just the residual change in NAV that can't be explained in any other way. If so, it's a rather theoretical figure, not reflecting the actual deterioration in the assets, and I suspect it could easily change significantly from one quarter to the next. That said, perhaps we should be concerned by the fact that the NAV would have dropped quite a lot if it hasn't been for the REGO windfall.
I can't see any underlying reason why the Q4 results should be much worse than the rest of the year, so I'm inclined not to worry too much about these numbers. But I hope someone will ask about them at the presentation, and I'd be very interested to know UKW's response.
Some number behind what I was saying.
Why are they now showing depreciation and why has it stepped up so much?
Data in nav/per share form Factsheets.
June - depreciation 1.6 for 6 months ( not specifically mentioned in the factsheets before this) -net cash 8.8 (so av 4.4 per quarter), divi 4.1 for half year
Cash less divi and depreciation(for half year) 8.8-(4.1+1.7)= +3.0
Sept 2023 depreciation 1.7 for 3 months, net cash 5.2, divi 2.2 5.2-(2.2+1.7)= +1.3
Dec 2023 depreciation 2.1 for 3 months, net cash 3.5, divi 2.2 3.5-(2.2+2.1)= -0.8
March 2024 depreciation 2.2?* net cash?, divi 3.43 ?-(3.43+2.2) need net cash >5.63
June 2024 depreciation 2.2?* net cash?, divi 2.5 ?-(2.5+2.2) need net cash> 4.7
One has to assume depreciation is fixed (beyond increasing with the number of assets), as are the divi’s, so they will need almost 2x div cover (4.7) if the nav is not to drop each quarter after Q2 without other factors coming into play (and a one off net cash greater than 5.63 for Q1).
Wind speeds actual / long term average
2023 -Q1 9.2/9.8 Q2 6.9/8.2 Q3 8.0/7.8 Q4 9.1/9.2
Fair to say that the 2nd quarters wind was notably low but the rest was close to the 20 year average and Q4 should be reasonably representative of income (and this is with energy prices still relatively elevated).
* increased this by 0.1 for Kype Muir.
Any thoughts?
I agree with most of what you say (including about the REGO's), but the wind speeds were average for the quarter so it is hard to put reduced income for the quarter down to this. They also have the London Array contributing as well now so I was expecting an uplift from this.
They have a conference call with the Annual Results soon so there will be an opportunity to quiz them on it then.
Although I think UKW is doing well, all thing considered, I don't think things have got so much better as to justify the extra dividend increase (over RPI). I think they should have stuck to the policy of just increasing by RPI, and used the extra money to reduce their debt (which has gone up a lot this year).
When they announced the extra dividend increase and the share buybacks, the reason they gave was that they wanted to reduce the discount to NAV at which the shares are selling. Why do they want to reduce the discount? Apparently so that they can issue more shares. But I'm not sure I want to see more shares issued. And I'm happy for the shares to sell at a discount. It makes the share buybacks more cost effective, and I might want to buy more shares myself in the future if the price is right.
@Monkshood
I don't think you can infer much from a single quarter's figures. They vary a lot from quarter to quarter. The cash generation figure was pretty low this quarter. Hopefully that's a temporary effect (due to low wind?).
I'm not sure, but I reckon the negative amount for inflation is due to inflation having fallen. When the rate of inflation stabilises, that should go away (or turn positive if the rate increases again!). A sustained fall in inflation rate and interest rates should lead to a reduction in the discount rate, which would increase NAV. So I reckon there are a lot of things jumping up and down on a temporary basis.
One thing that struck me is the significant effect of allowing for REGOs. I've just read up about these. It seems they can be sold separately from the renewable electricity that gives rise to them. So companies are buying them for greenwashing purposes, and that's caused them to have significant market value. If Ofgem clamps down on that practice (which they probably should), that value might disappear.
Just wish I had more!!
Does anyone know why the Hornsea 1 debt has increased by £13M over the quarter - has it been refinanced??
The income clearly covers the divi. However, this quarter divi distribution plus the depreciation was greater than the income . As these are the more 'consistent variables' (and the divi's are also increasing) then will need to get used to a constantly falling nav going forward?
Less concerned by price/inflation impact on nav as these will normalise over time, plus will be in part, be countered by the change in the discount rate.
Is there something I am missing?
Quarterly divident increased to 3.43p. Fantastic news. Well done UKW.
Onwards and upwards.
Hi. UKW is my largest holding, so I obviously think it's good. The 2 main risks I can think of:
1. In the long term there might be a surplus of intermittent electricity and/or government is unsupportive, leading to lower prices for UKW's electricity. But UKW's NAV estimate already assumes the electricity price will fall 2% p.a. in real terms over the long term, which seems pretty conservative.
2. Wind turbines wear out sooner than expected and/or maintenance/repair costs become excessive.
Both of these are longer term risks. In the shorter term it seems pretty safe.
This came up on my radar, so have got some in my SIPP. They seem to have good dividend cover and growth. What is the downside/risk here? They seem pretty solid
12.5% over the long term average.
The higher winds for December made up for the lower ones in November (and to a lesser extent October) to leave the last quarter only 1% below the long term average.
It is unusual to get the Government data before the company releases its quarterly results so UKW are clearly running a bit late with them this month.
When will the Divi value be announced, Dividend Max saying it would be 22nd Jan but no news yet
Agree. The Feb divi will be a bumper one to get us to 10p this year , so 3.43p by my calculations, and then 2.5p a quarter thereafter.
With the share buyback, inflation (mainly) falling vs the dividend increasing, and the NPV much higher than the SP i thought this would be steadily rising .
Happy to hold and top up as and when possible
Topped up at below 144. Surely will seem under valued when the 10p/y dividend hits.
Until the new tax year window opens, I can't buy anymore. I'm also itching to at todays price.
A very interesting post. I knew nothing about this problem. What we need more is a consensus on where to put the pylons.
This is an interesting read from the Guardian in 2020 about a proposed project to construct a flywheel in Scotland to help stabilise grid frequency.
"Currently, the National Grid Electricity System Operator (ESO) is forced to shut down windfarms and run gas power stations even when there is more than enough renewable energy to meet Britain’s electricity demand, in order to keep the grid’s frequency steady."
https://www.theguardian.com/business/2020/jul/06/giant-flywheel-project-in-scotland-could-prevent-uk-blackouts-energy
With the buybacks going on still expect to get an opportunity to buy more of these so happy about the 146p that came up just now.
I also heard these stats about wind turbines shutting down as winds get above 55MPH. I live in Cumbria where they are often a few turbines not working as the rest are whizzing around in the strong winds. It always seemed to me that this was a huge design flaw. But with even just a little digging around for answers it is clear that the main flaw was with the power grid system. Although turbines are slowed/ stopped in extremely high winds, they use a gear system that means more wind is needed to turn them. There are not many hours a year they can't produce power in. Often, wind farms would power down a few turbines as the grid couldn't handle the power generated NOT that the turbines couldn't handle the wind. As the grid improves through investment from National Grid and local connections improving over time and with huge battery storage projects in the works, the increase in wind power generation will continue (even without more turbines). A wind farm working now will still improve over time with a better grid and better energy storage systems in place.
Wind turbines are designed for high winds and are designed to survive even the wilder windy weather we will likely get in the future.
According to this report:
Wind turbines beat production record as Storm Pia descends
August Graham, PA Business Reporter
Thu, 21 December 2023, 3:45 pm GMT·2-min read
The UK’s wind turbines generated a record amount of electricity on Thursday morning, the grid revealed.
Between 8am and 8.30am wind farms across Great Britain generated 21.8 gigawatts of electricity and supplied 56% of all the power that was being used from the grid.
Winds of over 80mph have been battering the UK with weather warnings in place for large parts of the country.
It beats the previous 21.6 GW record which was set in January this year.
National Grid Electricity System Operator (ESO) said that the final figure could still change a little.
https://uk.finance.yahoo.com/news/wind-turbines-beat-production-record-154248274.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAEn4BRfxGXCAdheFQjoAYqd-rzqSghi_ewSV_YROz-ZMcJSdT7dc-iYYA8sE_1Kl7p2sOUKXFYYyfh4e05lISWvYQ0-SJ17D3dkVoFx1c54I_GdlyGzjlhUlRl7WUrqjeU4APtVnIpld37R-7KuUJ2l2R2Lk8gM8-6-nc1ij0XK0
Looks like December winds will make up for the November calm. My train to Euston was cancelled today due to the overhead lines being blown down! Hopefully it’s not too windy though as I’ve read that some turbines are shut down once winds reach 50-55 mph.
13% below long-term average which I was surprised by - it seems like it has been wet and windy for months now!
The past three Decembers (El Nina's ) have been below the long term average so it will be interesting to see what happens now we are back in a El Nino phase.
I'm not convinced that an absence of new projects is much of a drawback. I'm happy for UKW to invest its surpluses in share buybacks or paying off debt. Over the near future I suspect the price will probably just move together with the UK stock market and/or interest rates, although the share buybacks should exert some upwards pressure. I added some shares recently at 145p, as markets seem pretty bullish at the moment, and maybe there'll be a Santa rally. Maybe I should have waited for another dip, but it seems like good value at that price, so I thought why risk missing the opportunity.
So, I wonder if the share price will pullback in the new year because we are going to find it harder to raise funds to therefore invest in new projects?
Stephen Lilly has already commented on needing patience, and maybe something might transpire after the share buyback but I've always been bullish on UKW, and I still am, but it doesn't mean I'd rather buy on the troughs than the peaks!
No matter what. UKW has a great future.
ATB.