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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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Discount to NAV is now down to 10%, thanks to the increased share price. I wonder whether it's still worth doing share buybacks rather than reducing debt. Other renewable companies are even selling assets to reduce debt. UKW seems to be so confident about its profitability that it's happy to borrow at 7%. Let's hope they're right!
BBC News - Price paid for offshore power to rise by 50%
https://www.bbc.co.uk/news/business-67430888
There has been masses of wind promotional items on CNBC today
Great rise yesterday. Good steady buyback too.
Https://renews.biz/89441/uk-wind-power-still-a-better-deal-than-gas/
ZeroHedge picking up on the same...
https://www.zerohedge.com/commodities/german-govt-agrees-provisional-siemens-energy-guarantees-amid-wind-crisis
It will be interesting to see what impact this has.
Bloomberg-
The UK government is preparing to offer significantly higher subsidies for new offshore wind farms to get the country’s clean-power strategy back on track after developers shunned a previous auction.
The ceiling for bids from offshore wind companies in the next auction round is likely to be considerably more than this year’s £44 ($54) of guaranteed revenue per megawatt-hour of power produced, according to people familiar with the matter. The price, due to be published later this month, is likely to be set at about £70-75, one of the people said.
They are only buying their own shares because there is currently nothing worth investing in. Government is offering no security and incentives.. Too many headwinds and pylon protestors..
Yes long way to go yet, Nav still just over -14.
Adding up the shares in the share purchase RNSs so far, I get a total of 1.15 million shares purchased. By my rough calculation, that's about 0.05% of the shares in issue, or about 0.33% of the shares they announced they were planning to buy over the next year (about 15% of shares in issue). They've still got a long way to go!
Well, they haven't hung about buying sizeable tranches of their own shares.
I've noticed SHELL are also going through (a much larger) buyback, but they've also offered to buy shares back from investors.
Does anyone know how that works and or why it's different to our buyback?
Regards.
That link doesn't seem to be working. Try this one:
https://citywire.com/investment-trust-insider/news/trig-eyes-more-disposals-to-reduce-debt-says-it-may-buy-back-shares/a2429126
Here's a new article about TRIG's sales, but interestingly it says they were sold at a premium, which somewhat contradicts my thought that assets are being sold off cheap.
https://citywire.com/investment-trust-insider/news/trig-eyes-more-disposals-to-reduce-debt-says-it-may-buy-back-shares/a2429126?utm_medium=website&utm_source=citywire_it_insider&utm_campaign=home-content-list-1&utm_content=investment-trust-insider-latest-news-list&utm_pos=6#ShowComments
Monkshood, you're probably right that they're hoping to get the share price back up to NAV so that they can issue more shares to make more investments. In the meantime, they're happy to borrow at 7% to make new investments. I guess they think there are still some great investments to be made. I find that somewhat surprising given the failure of the last round of auctions for CFDs for new offshore wind farms (and I think it's still going to be difficult to get planning permission for new onshore). You would think that if there are no new assets being built, that would push up the price of existing assets. But on the other hand, maybe the same negativity that's cutting the price of renewable shares is also cutting the price of the assets. I read that TRIG has recently sold some wind farms to pay off debts. I guess UKW is more optimistic about the future than other companies, and is being greedy when others are fearful (to use Warren Buffet's expression).
By the way, I understated the amount of new (more expensive) debt UKW has taken on. I was looking at the June half yearly report, which I think showed no borrowing on the Revolving Credit Facility. But the recent Sept NAV update mentioned that they now have 400M borrowed on the RCF.
Foobar, I found the figure of nearly 1B earnings that I think you were referring to, in the last annual report. I believe those are statutory (IFRS) earnings, which are not useful for companies like this. I think it mainly has to go do with the way the accounting rules handle depreciation.
That said, the "net cash generation" figure, which UKW uses to calculate dividend cover, is also not ideal, because it ignores depreciation altogether. Since wind turbines are a depreciating asset with a limited life, I think the dividend cover is overstated. I've mentioned this before, and I suggested an adjustment that we should apply to dividend cover, but now I'm wondering if I underestimated that figure, so I'm going to give it some more thought.
Anyway, the best figure to use for valuing the shares is the NAV, as that's based on a discounted cash flow analysis which is better than anything you or I are likely to be able to do.
By my calculations if they can get the share price near to nav and then issue around 200m shares at nav it would be enough to get them into the FTSE 100. This in itself would help drive the sale of any share issue which is why I don't think that they will be too worried about debt.
Whilst I am inclined to agree with you, I wonder if they hope that they can get rid of the discount then issue equity to cover some of the debt at a smidge over nav as they have done in the past?
I guess their concern maybe is if they reduce debt too much and are still at a significant discount they will be bought out by PE.
I certainly hope the remainder will go into debt reduction. I compared the interest rates on debt in the last annual report with those in the half year report. A large part of the additional debt is project-level debt that came with the recently acquired Hornsea 1. That's long term low rate debt. Good. But the other new debt (additional debt and replacement for matured debt) is at a much higher rate: about 7%, compared with old debt that's all under 3.2%. There's another 100M of cheap (about 2%) debt maturing in 2024. They should really pay that off and not roll it over at 7%.
The cash generation in the last quarter was around £120M (with low wind), divi's paid were £51m so not quite the 3x indicated by Citywire, but then there is more to come with the London array and South Kyle not fully contributing to revenues in the quarter which maybe what gets the numbers to their estimates.
That's nearer the mark. In broad terms, £200M to cover the divi's, £100 M for share buy backs and the remainder for debt reduction.
Hi Foobar. That sounds too good to be true. Because it is!
According to the Jun 2023 half year report, debt was 2B and net cash generation was 200M for the half year, so let's assume about 400m for the full year. (Since then, debt has increased from 34% of GAV to 38%, which is about a 12% increase.)