Optimising capital allocation
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Edison Investment Research Limited
London, UK, 14 March 2024
Edison issues flash on Foresight Solar Fund (FSFL): Optimising capital allocation Foresight Solar Fund (FSFL) celebrated its 10-year anniversary of listing on the London Stock Exchange with decade-high cash distributions from assets of £120.4m in its FY23 results (year end 31 December). FY23 also saw FSFL’s divestment programme come to fruition with the sale of a 50% stake in its Spanish Lorca portfolio at a 21% premium to its holding value. The proceeds of this divestment, along with free cash, were used to pay down the fund’s variable rate debt via its revolving credit facility by £40m and to continue to deliver on the share buyback programme, with half of the £40m being deployed in 2023. FSFL released guidance of a 6% y-o-y increase in its dividend (33% dividend growth since IPO) for FY24 at 8p/share (FY23: 7.55p/share) with dividend cover of 1.5x (FY23: 1.6x). There is significant headroom in the dividend cover to operate further out, even in a falling power price environment.
The sale of several large Renewables Obligation Certificate-backed solar portfolios in the UK provides a reliable benchmark for FSFL’s assets and what look like conservative management valuations. The latest sale of a UK solar asset indicates a value per megawatt roughly 15% above the valuation FSFL uses on its UK portfolio of £1.17m/MWh. This comes alongside the sale of two other UK solar portfolios in 2023, both at greater valuations than FSFL’s valuation per megawatt hour. We determine that there is a noticeable contrast between these private market transaction values, at premiums to holding values, compared to the market valuation of FSFL (23% discount to NAV). FSFL’s FY24 dividend target represents an 8.8% yield at the current share price with management forecasting 1.5x coverage.
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1859009 14-March-2024
