NextEnergy Solar Fund Ltd (LSE:NESF) has reported a strong operational performance for the first half of its financial year, with its solar sites generating more electricity and cash than expected.
The company, which owns 101 operating solar and storage assets, said generation rose to 627 gigawatt hours over the six months to the end of September, up from 595 GWh a year earlier.
Sunshine levels were well above average, irradiation came in 13% ahead of budget, helping output beat expectations by 7.6% and adding roughly £2.5 million in extra cash.
Paul Le Page, the outgoing interim chair, said: “We delivered a strong operational performance from the Company’s high performing portfolio and focused capital allocation.”
He added that the portfolio’s outperformance “gives us confidence for the future” despite “challenging” market and regulatory conditions.
However, the company’s net asset value per share fell to 88.8p from 95.1p in March, mainly due to consultants cutting their forecasts for future electricity prices.
Because funds such as NextEnergy Solar value their assets using estimates of the power they will sell over the years ahead, shifts in those forecasts can significantly affect their stated valuations.
Le Page said the board believed the fund’s share price discount to NAV was “wholly unjustified”, pointing to asset disposals completed above NAV, a “well-structured balance sheet” and a dividend covered by cash.
A strategic review aimed at narrowing that discount is underway, with conclusions expected in the new year.
The fund declared dividends of 4.21p per share for the half, unchanged on last year. Dividend cover, how comfortably the business can pay its dividend from the cash it generates, strengthened to 1.7 times, and the full-year payout target of 8.43p has been reaffirmed.
The company expects cover of between 1.1 and 1.3 times for the full year after debt repayments.
Total debt, including preference shares, stood at 49.2% of gross asset value, just below the 50% limit set in the investment policy.
A separate gearing test linked to the company’s average market value has exceeded a 50% threshold under the terms of its preference share agreement with USS, triggering restrictions on share buybacks, special dividends and new borrowing unless USS gives approval.
NextEnergy Solar said the restrictions do not affect its operations and it expects asset sales to bring the ratio back below the limit.
The company has continued its capital recycling programme, which involves selling selected sites and using the proceeds to reduce debt or reinvest. So far it has sold 145 megawatts of capacity, raising £72.5 million and adding an estimated 2.76p per share to NAV. Two more sites totalling 100 MW are in progress.
NextEnergy also confirmed a cut to its investment management fee, agreed with its adviser NextEnergy Capital, which lifted NAV by 1.3p per share. A separate reduction in operating asset management fees is expected to trim costs by about 23% over time.
Alongside the results, the company confirmed that new chairman Tony Quinlan, a former chief financial officer at Drax, will join several board committees and will lead its market disclosure committee.
Le Page returns to his role as an independent non-executive director.