Member Info for Jimothy

If they convert at NAV then that’s at 76p today. I wouldn’t count on gilt yields / discount rate remaining this high, plus only 75% operating cash flow being paid out in future - so that’s two legs that should repair NAV in time.

See what happens but it seems that the end of the current dividend regime should be low point for NAV (especially given gov policy inclusion)

10% NAV drop is horrific

But

Nesf strategy reset is that new dividend will be 75% operating cash-flow. They’ve increased the guidance for year forward from 4-4.6p up to 4.5-5.1p, so at least global instability starting to yield some positive.

Also worth noting that around half of the NAV drop is attributable to impacts of gov policy and discount rate (gilts).

I think the ability of any future government to “cancel” certain contracts without compensation is overstated. That offers the renewables trusts and likes of primary healthcare properties some level of assurance - and those are index (or electricity pricing) linked.

Issue for SOHO is the convoluted flow of cash, that would be more easily disrupted.

If inflation picks up, property replacement cost picks up, REIT book value increases (as well as index linked rents).

Flip side, discount rate on future cash-flow increases as does interest in debt.

Kind of a toss up which weighs heavier, nature of debt (fixed or SONIA+) influences it. Not as simple as any rule of thumb makes out, in my opinion.

Any thoughts about long term EPS impacts of capitalisation requirement moves from 2 up to 10%?

185p seems… unlikely, given that even during the first outburst of the Tariff Tantrum, we only got down to around 205p-ish.

I see that the “stick” is bumping up EGL tax rate from 45% to 55% on rates over 75 £/MWh. Remains to be seen what the offered rates on fixed cfd contracts will be, but I daresay the hit on going from 45% to 55% on part of earnings isn’t exactly existential.

Hopefully once we are over these announcements the IMs can get on with navigating the updated environment, the uncertainly can be partly put to bed and we can all move on.

I don’t think any serious comment can be made until we know the extent of windfall tax increase threatened and the cfd strike price offered for legacy assets. Outcomes could range from a legitimate smoothing of revenues, to bringing forward of 2030s cash-flow forecasts.

Keep in mind that offered cfds could be above recent auction strike prices to entice legacy assets over.

Thanks Jerry - Guardian speculation vs deployed policy is also a factor as you say! As is cost of debt (all jumped up 1%+ since Iran, which hits).

Interesting if batteries not affected by EGL - strategically makes sense when the grid will need more as we decarbonise.

Lots going on, but stay calm and sit tight feels the appropriate response.

Real tough time navigating the net effect here. As far as I can tell there are several forces at play:

- carbon price support removal (as per rns)

- potential increase in energy generator levy (45% over £75/mwh)

- migration of assets to cfd contracts

- general decoupling of gas price from merchant power pricing

Aside from a possible increase in the windfall tax, all of these were already a question of when rather than if. I’m hoping that given NESF hedges heavily, an increased energy generator shouldn’t be too impactful.

No idea how much of this is baked into NESF updated strategy outlook - some of it certainly is. NAV at end Dec was 85p, although that’s going to be near 80p with changes to inflation measurement and carbon price support removal, so the question is how much does any new info move the dial (70p base case?).

I dare say NESF might be at the lower end of impacted investment trusts given hedging extent? Battery returns will take a hit as the whole point was to move from trash MW/h to time slots with higher pricing (£75+ more likely).

Sitting tight might not be a bad call? Lots of uncertainty, but that’s the same across all asset classes right now. If the trust can tread water at nav around 70p and the sp holds the discount rate, collecting the divi payments could be a way to navigate market volatility elsewhere.

All feedback welcome - so much uncertainty at present.

The business case is the same as yesterday (minus the 100Mw sale), but with more management flexibility and a move from cash payouts to 50% cash, 50% NAV accretion.

As a younger investor, I prefer this. It gives the fund legs long term, and I suspect will see improved net returns over the next few years (management can better deploy capital now for repowers, buybacks down the line if 40% discount continues).

Good to see the focus on energy storage - great synergy with solars to achieve better power pricing.

Assuming share price maintains relative to NAV, just sell a few % of your pot each year to get the same equivalent dividend.

Would say this is more a sigh of sensibility than panic.

The ADR shares were trading at £5.06 after hours, and there’s been major escalation over the weekend.

Not sure I’d leave a sell order at £5.15.

We’re going to have a trading result like the world has never seen. Analyst expectations will be utterly obliterated. We’ve gone from being a failing company under the previous administration, to expecting the hottest results ever.

Thank you for your attention on this matter.

BPT

(BP Trading)

In all seriousness though, I can’t even imagine what the BP and Shell trading divisons will be achieving with this level of volatility. Q1 will be one to watch with popcorn. That debt is going to start falling away.

* re-powering solar sites

Another point the market may be missing is that re-powering sale sites at the end of working life with new panels gives improved energy production over the initial site when new (due to tech advancements) and is a fraction of the cost.

So the idea that the NESF portfolio will run to zero value seems to be a nonsense.

So Uk solars are suffering as spot electricity is usually cheap in the times they produce. Per MW hour, solar is a cheap generator after all.

NESF are increasing their grid battery capacity, that should enable energy sales at more favourable pricing. I wonder if part of the strategy review is to reset the level this will represent in the fund (currently max 10% of gross assets, so around £100m of £1bn).

This might allow NESF to benefit on the spread cost of their own, and others’ renewables generation - boosting future cash flows and asset value calculations.

With UK unemployment ticking up and inflation remaining relatively in check it feels like we are headed for lower interest rates, which will also reduce outgoings.

We could well be at, or near, the bottom - time will tell. NESF certainly has options in front of it.

A few thoughts here on common topics:

Power Curves

Yes these have been decreasing since heights of energy crisis. However NESF own predictions are cautious compared to broader market, and market rates have been ticking up last few months - might we see this start to trickle through?

Prefs

Not sure I see the issue here. From 2030 NESF can convert to standard debt. The right of pref holders to redeem for share value kicks in 2036 - if at that point NESF still has wide NAV gap wouldn’t they just redeeem for debt instead.

Subsidies

Solar farm subsidies start to fall off in the next couple of years, yes, but these are only for the oldest sites. There is not a cliff edge on any given year as I understand - it’s a dwindling over the next 15 or so.

Am I missing something glaring because, especially if power curves are bottoming now, it seems like dividend cover will get tight but very real chance it remains above 1.0. Asset sales anywhere near NAV will boost that further, as will financing options unlocked by a lower interest rate environment.

Again - am I missing anything? The shareholder boards sound like the sky is falling but I just do not see it. And even a 50% divi cut would be a favourable yield (only for those buying now obviously) - but I just don’t see much downside to investing around the 50p per share price. Different story for long term holders, naturally.

Checked RNS, 2028/2029 options rather than short term. They're in for the long haul.

As good as direct shareholding given the timeline.

Elliott putting pressure on for target of $20bn free cashflow for 2027 is probably the source, as well as confirmation of actual shareholding rather than options.

If they get anywhere close to that - debt interest, dividend and buyback spend worry goes away.

Interesting ramp up in daily buybacks last couple of days as well, not sure how that is calculated, could be coincidence.

Good point Jakers, yes debt interest needs to be added in. Which wipes out any cash from replacement cost profits in recent quarters with dividend payments, and means buybacks add straight to the debt pile.

BP dividend requires $5bn a year to cover, or $1.25bn a quarter.

Their underlying replacement cost profit is considerably above that level in previous quarters ($2bn+) and I’d hazard that this remains the case with oil at $60 given that the messaging implies dividend alone is cash sustainable down to $40 a barrel.

Whilst I don’t expect “shell will buy the entire of BP” or anything like that, I do wonder if the market interest is to bring BP sentiment to an absolute bottom for best leverage in negotiating asset disposals. Sentiment bottoms (eg peak Covid) are also excellent long term buying opportunities, typically.

Too early to call anything before we’ve seen new strategy bed in for cost reductions / disposals / project priorities.