- NAV total return 9.1% for the fourth quarter
- Dividend increased in line with RPI again
- Analyst says 5% discount 'undemanding'
Renewables investment trust Greencoat UK Wind (UKW) bolstered its dividend credentials as it posted strong returns for the three-month period to 31 December.
The investor in wind farms has maintained a covered dividend linked to RPI (retail price inflation) since its IPO and its yield of 5.5% is the highest in its sector. This morning the dividend was hiked 13.4% to 8.76p. The market responded positively this morning, marking the shares 3.6% higher to 159.1p - a discount of 5% to the last reported NAV (net asset value) per share of 167p.
Greencoat UK Wind reported a NAV total return of 9.1% for the fourth quarter and 30.9% for the calendar year. The 7.8% quarter-on-quarter increase in the NAV was underpinned by updated power price assumptions, partly offset by the impact of new windfall taxes. The levered discount rate has increased from 7.8% at the third quarter stage to 8%.
WHAT IS THE DISCOUNT RATE?
Rising interest rates have led to higher discount rates on long duration assets like renewables infrastructure. Two key elements make up the discount rate. First you have the risk-free rate which is typically taken as the yield on government bonds. Then there is the risk premium - the part which reflects the risk associated with investing your money. The risk-free rate has moved materially higher.
Numis analyst Collette Ord said: ‘Shares have reacted positively this morning but continue to trade below the latest NAV on a discount of c.5%, which is undemanding in our view.
‘We note that UKW does have some refinancings to complete at the end of the year, which will see its interest costs rise on a portion of its term debt.
‘We also note the £320 million commitment to fund (the) South Kyle (development) in the coming quarters, but we believe this could be funded by cash generated from the portfolio.’
