Member Info for tichtich

I decided to go ahead and buy more BSIF. I think it's a good hedge against inflation.

That's me fully invested now, which means we can expect a market decline from here. Good luck!

Ah, not the sun going out, just US CPI a bit higher than expected. Yawn.

Maybe scientists have just discovered that the sun is dimming. 😎

I bought BSIF a week or two ago at what I thought was a bargain-basement price, and now it's down nearly 10% from there. Yield is now about 8.8%. Good job I kept back some cash for an even greater bargain. But I'm not sure whether to go for more BSIF or UKW (which is already one of my biggest holdings) or wait a bit longer. In the stock market, cheap can always get cheaper!

Also, I'd like to know whether there's any company-specific news I'm unaware of.

I'm not an expert, so take this with a pinch of salt, but as I understand it.... RSE will buy back about 36% of its shares at £10.50 each, by means of a tender offer. That means it will buy them directly from shareholders, not on the open market.

Since that price is well above the current market price, I imagine that nearly all shareholders will want to take up that offer, so it will likely be oversubscribed and shareholders won't get to sell as many shares as they would like. RSE hasn't said how an oversubscription will be handled, and I don't know what the normal practice is. Maybe each shareholder will get to sell about a third of their shares through the tender offer.

Once the tender is done I would expect the market price of shares to go down, a bit like going ex-dividend.

Since I don't want to hold RSE for the long term, I decided to sell my shares today, for about 920p, and take my profit that way. I don't know whether this will work out better than waiting for the tender. But I have my eye on other shares I can buy with the money.

Thanks for the Proactive link, StarBright. That was very helpful.

Where are you seeing a spread of about 7p for LGEN, StarBright (your 242.6 / 249.3)? Everywhere I look, including londonstockexchange.com, I currently see a spread of 0.10p or 0.20p.

I'm no expert, and I could easily be wrong, but I was under the impression that regular transactions on regular stock exchanges were all done with market makers. (I'm assuming that's what people mean by MM.)

225p is my target for adding too. That said, I invested the last of my disposable cash yesterday (in BSIF), not much in dividends due soon, and not much other spare income, so there's no hurry. 😎

Interesting article:

https://www.pensionsage.com/pa/Majority-of-UK-pension-schemes-expected-to-increase-renewable-allocations.php?utm_source=jsrecent

Towards the end of last year they announced they were going to cut the dividend. Then yesterday they made the official dividend declaration, and some people apparently got the news of the dividend cut for the first time, so the share price fell. I think many people invest in this sort of share for a regular income, and if the dividend is cut they get cold feet and sell, regardless of the fundamentals.

The headwinds that eventually led to the dividend cut are old news now. Since then there's been some good news. At the same time they originally announced the dividend cut, they also announced that they'd agreed the sale of the last of the local authority housing (good) which will let them pay off the remaining variable rate debt (very good). I was still a bit concerned about whether the sale would go through. But yesterday they announced that they'd exchanged contracts on one sale and the rest were proceeding satisfactorily. I'm more optimistic now, so the fall in share price suited me. I took the opportunity to buy more shares.

Well, I thought I'd missed my chance to buy in the mid-60s a couple of days ago. But I got an even better one today. Have I made a mistake? I don't know. But I reckon GSF at this price is less risky than the shares I sold to raise the money!

P.S. Oops, that should have been "... cash spent on share buybacks is not deducted from..." If it is, then I think they've made a mistake, since such a deduction would make no sense, as far as I can see.

Buybacks at NAV would have no effect on the NAV per share. As they've been done below NAV they've increased the NAV per share, and I believe that's recognised by the listed +0.1p for 'Share buybacks'. I'm pretty sure that cash from buybacks is not included in 'Net cash generation'.

Actuary63,

If we accept the assumptions in the NAV model, then reinvestment of surpluses should cover the replacement of existing assets. Alternatively (if accretive investment opportunities are not available) the surpluses could be paid out as extra dividends, allowing shareholders to invest elsewhere to replace the eventual loss of dividend income as the assets wear out.

Personally, I think the best way to value UKW shares is to look at its DCF NAV calculation, and ask whether its assumptions are reasonable. If they are, then the expected return on the current assets is 10% p.a. Any accretive investment would be a bonus on top of that. (Of course, with this approach I have to assume that they've done their DCF maths correctly, as I'm not going to check it myself!)

Monkshood,

PPAs are 'merchant pricing', but it looks like I was mistaken in assuming that PPAs are at fixed (predetermined) prices. They can be 'variable', which I think means linked to current market prices.

I don't know whether the market prices they are linked to are 'spot' prices. But this link shows spot prices over the last year:

https://tradingeconomics.com/united-kingdom/electricity-price

FWIW the spot prices in Q4 look like they were no lower than in the previous 2 quarters.

The subject of depreciation just came up on the UKW board too, and I made a (sort of) similar point to SB's here.

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.

I was fortunate enough to buy in the mid-60s during the last dip. I bought a double-size holding, as it seemed like a great opportunity. Then I took profits in the mid-80s, selling half, planning to hold the rest for the long term. Now it looks like it's nearly time to double up again and repeat!

That said, back then the whole stock market was down, especially "interest rate sensitive" stocks. It's a bit worrying that GSF (and battery stocks generally, I think) are down again when the rest of the market is holding up.

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.