Greencoat Renewables — Acquisitions generating more green

Research: Investment Companies

Greencoat Renewables — Acquisitions generating more green

Greencoat Renewables (GRP) recorded positive FY23 results, with continued strong net cash generation of €196.7m (2022: €215m) underpinning a significantly covered dividend of 2.7x (2022: 3.2x). NAV per share (112.1 cents) decreased marginally from the previous year (112.4 cents) due to a reduction in short-term power prices and an increase in the portfolio discount rate, both largely offset by strong cash generation. GRP is strongly cash generative (reflecting the quality of its assets) and this cash generation is enabling the company’s continued expansion, with five transactions completed in 2023 and two expected in 2024.

Written by

Harry Kilby

Analyst

Greencoat Renewables hero

Investment Companies

Greencoat Renewables

Acquisitions generating more green

Investment trusts

QuickView

25 March 2024

Price

€0.86

Market cap

€980m

NAV*

€1,279m

*As at 31 December 2023.

NAV/share

€112.1

Discount to NAV**

23%

**Including income at 12 March 2024.

Yield (at 12 March 2024)

7.84%

Shares in issue

1.14bn

Code/ISIN

GRP/IE00BF2NR112

Primary exchange

ISE

AIC sector

Renewable Energy Infrastructure

52-week high/low

€112.0

€85.0

€113.2

€112.0

***Including income.

Gearing****  51.2%

**** At 31 December 2023.

Business description

Greencoat Renewables is a listed renewable energy infrastructure company, which invests in European renewable electricity generation and storage assets. The company’s aim is to provide investors with an annual dividend that increases progressively whilst growing the capital value of its investment portfolio in the long term through the reinvestment of excess cash flow and portfolio leverage.

Bull

Well-positioned to capture growth in European renewables energy as net zero targets accelerate.

Strong cash generation ability with significantly covered dividend and opportunity for additional organic growth.

Ability to capture higher power prices and inflation linkage within the portfolio.

Bear

Current negative investor sentiment surrounding renewables.

Power price markets remain volatile with risk of renewable energy decreasing with increased generation.

Longer term debt refinancing risk.

Analysts

Harry Kilby

+44 (0)20 3077 5724

Andrew Keen

+44 (0)20 3077 5700

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

Greencoat Renewables (GRP) recorded positive FY23 results, with continued strong net cash generation of €196.7m (2022: €215m) underpinning a significantly covered dividend of 2.7x (2022: 3.2x). NAV per share (112.1 cents) decreased marginally from the previous year (112.4 cents) due to a reduction in short-term power prices and an increase in the portfolio discount rate, both largely offset by strong cash generation. GRP is strongly cash generative (reflecting the quality of its assets) and this cash generation is enabling the company’s continued expansion, with five transactions completed in 2023 and two expected in 2024.

Investment activity

Throughout FY23, GRP continued to strengthen its portfolio via the acquisition of four new assets through five transactions for a total of €524.3m, resulting in a 323MW increase in its total capacity to 1.5GW. These acquisitions consisted of an initial 22.5% and subsequent 15.7% share of the 288MW Butendiek offshore wind farm in the German North Sea, the 38MW Cloghan onshore wind farm located in Ireland, the 50MW Torrubia solar farm in Spain and the 134MW Erstrask North wind farm in Sweden. The increase in portfolio size and cash generation, further enhanced GRP’s ability to fund its investment activity through operating cash flows, with 20% of the total deployed capital throughout FY23 being funded internally. GRP expects to add two additional acquisitions in 2024, through previously committed forward sales agreements (taking its total capacity to 1.6GW), as well as securing exclusive access to 50% of a 1GW+ pipeline of onshore wind projects in Ireland by entering into a long-term strategic framework agreement with FuturEnergy.

Operational performance

Despite lower-than-expected wind resource (resulting in total portfolio generation 9% below budget for the year), GRP delivered strong cash flows of €196.7m leading to a significant dividend cover of 2.7x on a gross basis. GRP’s dividend for FY23 was 6.42 cents per share and management guided a target dividend of 6.74 cents per share for FY24, which represents a 5% y-o-y increase (and a 7.7% yield). GRP signed its first long-term power price agreement (PPA) with a large multinational company for 62.5% of the output of Butendiek. This PPA is one of the largest in Germany and paved the way to the signing of a second PPA for 18% of the output of Butendiek. At 2023 year-end, c 75% of revenues were contracted through to 2028 with c 69% being inflation linked, providing a high degree of income security and protection in a declining power price, inflationary environment.

Outlook

GPR’s gross gearing increased from 42% to 51.2% reflecting its investment activity throughout 2023 (60% of GAV cap). The portfolio’s ability to generate a high level of sustainable cash flow, has increased the company’s range of capital allocation decisions for 2024, likely favouring debt repayments and share buybacks if it continues to trade at a meaningful discount to NAV.

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United Kingdom

General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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