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Greencoat UK Wind: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Greencoat UK Wind makes sure-footed progress

In 2017, Greencoat’s portfolio generated 1,457GWh of electricity over the past year or enough for 620,000 homes
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INVESTMENT OVERVIEW: UKW The Big Picture
Plenty of opportunities out there

Not many companies attribute healthy results to the speed of the wind, but it’s seriously important for Greencoat UK Wind PLC (LON:UKW)

The UK-focused renewable energy investor has stakes in 30 offshore and onshore wind farms and these make money by how much electricity they generate, so having the wind blow at the right speed is critical.

READ Greencoat UK Wind well placed to take advantage of attractive pipeline

Too low and it won’t produce any, even if the blades are turning. Too fast and the turbine will shut down to avoid damage.

Wind speed also has a geometric relationship with the power generated so it is critical to understand how a turbine performs at different speeds to run at its optimum.

Sensible approach

Greencoat has been sensible in its approach to developing the portfolio.

For instance, it spends a great deal of time measuring the output from the assets before they are acquired as it knows even minor under-performance can be costly over the long-term if you own a lot of wind turbines.

A simple thing, but not everyone is this rigorous.

Similarly, its hands-on approach means Greencoat has fewer outages than many of its rivals.

All of this has created a company that delivers a steady dividend stream with a yield of 5.2% at the current share price of 124p.

Greencoat is already targeting a 6.76p payout for 2018, a 4.1% increase to match December’s RPI inflation number, which is one of its targets.

Supportive fundamentals

The industry fundamentals, meanwhile, remain very supportive.

Green subsidies are here for the long-term and the regulatory environment is better understood by investors than it was at the time of Greencoat’s flotation.

The pipeline of opportunities is such, the company can be very picky, acquiring the assets that deliver high internal rates of return. In other words, it won’t do a deal just for the sake of it and its track record bears this out.

Output and cash flow rising

In 2017, Greencoat’s portfolio generated 1,457GWh (gigawatt hours) of electricity over the year or enough for 620,000 homes.

Greencoat raised £340mln through a share issue in October and investments in ten more farms boosted net generating capacity to almost 700Mw from 420Mw.

Net asset value rose by 2.6p to 109.6p, with net cash generation £80.1mln compared to the dividend of £57.3mln.

At the halfway point of 2018, the net asset value per share had risen to 114.1p, or 109.6p on an ex-dividend basis. The half-year dividend was 3.38p.

In the first half of 2018, the group's investments generated 951-gigawatt hours (GWh) of electricity and £67.4mln (net) of cash.

Despite a strong first quarter, portfolio generation for the period was 6% below budget, mainly due to lower wind speeds in May and June, but thanks to higher-than-expected wholesale electricity prices net cash was in line with expectations.

At the end of June, the group had outstanding borrowings of £395mln, equivalent to 23% of the gross asset value, of which £150mln is fixed-rate debt.

Tim Ingram, Greencoat's chairman, said there were still many more opportunities to invest in wind power.

“Wind continues to remain the most mature and widely deployed renewable energy technology available in the UK, and the company is in a good position to benefit as electricity production from wind becomes an increasingly important part of the UK's generation mix.

“In 2017, approximately 15% of the UK's electricity demand was supplied by wind energy.

“Although only limited new onshore wind capacity is expected to be installed in the near term, there is a very large existing market of onshore and offshore wind farms that we expect to be available for investment going forwards,” he added.

Big market

Greencoat has been untroubled by Brexit and survived unscathed the downturn in energy prices.

This may explain the upsurge in institutional demand for the shares – although there may be a further reason for their popularity.

In short, investing renewable energy is fast emerging a go-to hedge against inflation.

Why so?

Governments support for the ‘renewables’ industry often comes in the form of long-term electricity price guarantees, usually linked to the cost of living.

At the same time, the price of electricity tends to adjust rapidly to inflationary pressure.

The shares are now trading at around a 9% premium to the company’s last published net asset value, which reflects growing confidence in wind as a power source and the inflation-proof income Greencoat produces.

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