Greencoat Renewables — Efficient capital allocation and increasing demand

Research: Investment Companies

Greencoat Renewables — Efficient capital allocation and increasing demand

Greencoat Renewables’ (GRP’s) large and diversified pan-European portfolio of renewable energy assets generated net cash of €113.6m in H124 (H123: €125.5m). This equated to gross dividend cover of 3x at end-H124 and a six-month return of 8.6% on its December 2023 net asset value (NAV). NAV per share remained flat at 112.1c, due to less impactful power price movements in the period and strong cash generation offsetting depreciation and dividend payments. GRP’s weighted average cost of debt reduced from 3.3% to 3.1%, due to terming out of a more expensive RCF debt and refinancing a new €150m five-year debt facility in February 2024. The company’s total aggregate debt stood at €1.3bn at end-H124, being 98% fixed or effectively fixed through interest rate swaps. GRP currently trades at a 16% discount to NAV with a 7.2% dividend yield.

Written by

Harry Kilby

Analyst

Investment Companies

Greencoat Renewables

Efficient capital allocation and increasing demand

Investment trusts

QuickView

26 September 2024

Price

€0.94

Market cap

€1.05bn

NAV*

€1,266m

*As at 30 June 2024.

NAV/share

112.1c

Discount to NAV**

16%

**Including income at 24 September 2024.

Yield (at 24 September 2024)

7.2%

Shares in issue

1.13bn

Code/ISIN

GRP/IE00BF2NR112

Primary exchange

ISE

AIC sector

Renewable Energy Infrastructure

52-week high/low

€1.04

€0.82

113.0c

111.6c

***Including income.

Gearing (at 30 June 2024)

51%

Business description

Greencoat Renewables is a listed renewable energy infrastructure company that invests in European renewable electricity generation and storage assets. The company’s aim is to provide investors with an annual dividend that increases progressively while 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 renewable energy as net zero targets accelerate.

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

Ability to further capitalise on the increasing demand for clean energy from Big Tech and AI.

Bear

Current negative investor sentiment surrounding renewables.

Power price volatility.

Longer-term debt refinancing risk.

Analysts

Harry Kilby

+44 (0)20 3077 5700

Andrew Keen

+44 (0)20 3077 5700

Greencoat Renewables’ (GRP’s) large and diversified pan-European portfolio of renewable energy assets generated net cash of €113.6m in H124 (H123: €125.5m). This equated to gross dividend cover of 3x at end-H124 and a six-month return of 8.6% on its December 2023 net asset value (NAV). NAV per share remained flat at 112.1c, due to less impactful power price movements in the period and strong cash generation offsetting depreciation and dividend payments. GRP’s weighted average cost of debt reduced from 3.3% to 3.1%, due to terming out of a more expensive RCF debt and refinancing a new €150m five-year debt facility in February 2024. The company’s total aggregate debt stood at €1.3bn at end-H124, being 98% fixed or effectively fixed through interest rate swaps. GRP currently trades at a 16% discount to NAV with a 7.2% dividend yield.

Disciplined capital allocation

GRP continues to be disciplined in its capital allocation strategy, with operating cash flows funding €33m in debt repayments and €25m in share buybacks (c 40% complete at end-H124 with 11.3m shares bought back at a 21% discount to NAV). GRP remains committed to organically deleveraging further. Management expects more than €100m to be returned to shareholders throughout 2024, via its progressive dividend and share buybacks. Management stated that it remains committed to its FY24 dividend target of 6.74c/share (5% increase y-o-y) and has guided a dividend cover of 2.3x in 2024 and an average of 2x between 2024 and 2028, alongside a progressive dividend. The company expects more than €400m in post dividend cash flow over the next five years (to 2028), providing the opportunity for significant reinvestment into the portfolio.

Top 10 pure-play listed European renewables player

GRP ranks within the top 10 largest pure-play listed European renewables companies, with a portfolio value of €2.5bn. At end-H124, it owned and operated 39 renewable energy generation and storage assets, with an additional asset to be acquired under forward sale agreements. The portfolio spans six countries and its largest technology weighting is onshore wind at 75%, followed by offshore wind at 22%, while solar and battery storage make up 2% and 1%, respectively.

Big Tech and AI driving demand

Big Tech and AI continue to drive the increase in demand for clean energy, and corporate offtakers are increasingly looking to secure their long-term clean energy through power purchase agreements (PPA). These green PPA’s are typically being seen at premiums to the merchant curve. In H124, GRP capitalised on these trends, signing a 10-year PPA with a leading data centre owner in Ireland, and completing post period the purchase of 50% of an 80MWp solar farm in County Meath, including a 15-year PPA with a leading tech company. GRP continues to proactively manage revenue streams and power price risk, having increased the percentage of contracted revenue within its portfolio to 77% between 2024-28. This should provide investors with further confidence and visibility of GRP’s future cash generation, as well as its ability to continue to increase dividends (if management chooses to do so) and proactively manage gearing over the medium term.

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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.

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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).

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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.

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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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