Greencoat UK Wind PLC

Greencoat UK Wind PLC (LON: UKW) is a renewable infrastructure entity with the primary objective to invest in operating the UK wind farms and preserve capital on a real basis. The Company makes an investment only in income-producing offshore and onshore UK wind farms. UKW is the only UK domiciled renewable infrastructure fund or infrastructure fund to list on the London Stock Exchange main market. The Company has interest in 38 operating UK wind farms with a capacity of 1,209 megawatts (MW). The European renewable investment manager, Greencoat Capital LLP, manages the UKW, while it has an experienced independent board.

Dividend Track Record

The chart below demonstrates that the cash generative nature of operational wind farms has driven the stable and secure dividend cover, while it is supported by the predictable production and low leverage of business. For FY20, UKW declared a dividend per share of 7.10 pence, and for FY21 it is targeting a dividend per share of 7.18 pence (which is in line with December 2020 RPI inflation). Therefore, it is targeting an internal rate of return of 8-9% to investors (net of fees and expenses) for the FY21. The Q1 FY21’s dividend per share of 1.795 with an ex-dividend date of 13 May 2021 is scheduled to be paid on 28 May 2021.

(Data Source: Company Website, Analysis done by Kalkine Group)

Growth Prospects

• Active Investments: During FY20, £51 million was invested into Slieve Divena II wind farm, £349 million into Walney offshore wind farm, and £500 million into Humber Gateway. In FY21, the Company has invested £48 million in Braes of Doune wind farm. So, all these acquisitions and high-quality assets shall increase the business scale and bring economies while there is a healthy pipeline of potential acquisitions opportunities.
• Strong Cash Generation: Since FY13, the Company delivered excellent cash generation which has supported the sustainable dividend policy. The robust cash generation has helped in prudently managing the gearing and provided higher tolerance to downside sensitivities.
• Favourable Market Dynamics: In UK, the Wind projects continued to be widely deployed renewable energy technology. The recent COP26 conference has also reiterated the net zero emissions target by 2050. UKW has made strong commitments in accredited wind farms projects and subsidy-free assets, creating substantial growth opportunities.

Risk Assessment

• Fluctuations in Power Prices: The Covid-19 pandemic and associated restrictions are likely to keep the power prices volatile in the short term. Therefore, it can impact profitability since nearly 50% of revenues are exposed to the floating power price.
• Regulatory Policies: Any unfavourable change in government renewable energy policy can adversely impact the value of the green benefits earned. Moreover, the Company has no control over the wind resources, which can bring production variability.
• Financing Risk: The Group plans to further fund projects through equity shares or borrowings to deliver expected real NAV growth; however, there are uncertainties regarding refinancing on reasonable terms.
• Asset Life: Higher maintenance costs to operate an asset, which does not meet the expected lifespan can materially impact on investment returns.

Now we will analyse some key fundamental and shareholders statistics of Greencoat UK Wind PLC.

Recent News and Regulatory Developments

Acquisition: On 24 February 2021, UKW announced the acquisition of the remaining 50% stake Braes of Doune wind farm for consideration of £48.1 million. It also signed an agreement to take over a 49.9% stake in Kype Muir Extension wind farm for £51.4 million in consideration.

Fundraising: On 17 February 2021, UKW raised £198 million in gross proceeds by placing 150,853,600 new Ordinary Shares. The net proceeds will be used for reducing borrowings and fund a strong pipeline of acquisition opportunities.

Financial Highlights for the year ended 31 December 2020 (as on 25 February 2021)

 (Source: Company Website)

• During FY20, UKW generated 2,952 giga-watt hours (GWh) of zero-carbon electricity and generated net cash of £145.2 million.
• It also conducted significant equity fundraising and made some high-quality acquisitions (including the investments in Walney and Humber Gateway, Slieve Divena II, and subsidy-free wind farm projects of Kype Muir Extension & South Kyle).
• As on 31 December 2020, the outstanding borrowings of £1.1 billion represented 33% of gross asset value (GAV). In February 2021, net gearing was reduced to 28% of GAV following the equity issuance of £198 million in gross proceeds.
• There was a significant growth in both top-line and bottom-line items of the income statement, driven robust portfolio, strategic acquisitions, and disciplined approach.
• The net asset value (NAV) per share increased to 120.4 pence in FY20 from 119.7 pence in FY19. Overall, the Company has been able to increase NPV more than retail price index (RPI) inflation since its listing.

Financial Ratios (FY20)

Share Price Performance Analysis

 (Analysis done by Kalkine Group)

On 28 May 2021, at 11:15 AM GMT, Greencoat UK Wind PLC’s shares were trading at GBX 132.23, down by 0.28% against the previous day closing price. The stock made a 52-week High and Low of GBX 150.00 and GBX 124.60, respectively. Over the last month, the stock price return has outperformed the benchmark index and the benchmark sector index.

On a daily chart, UKW's price recently took the support of an upward sloping trend line and started to move upside. Prices also took support from another downward sloping trendline, indicating further upside movement. The momentum indicator RSI (14-period) is trading in positive territory at ~53.84 levels. The trend-following indicator 50-period SMA sustaining below current market price and supporting a positive direction for the stock.

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Business Outlook Scenario

As the largest listed renewable energy infrastructure fund in UK, Greencoat UK Wind continued to invest in high-quality assets, increased resources for renewable energy investments, increased dividend in line with RPI, kept low gearing and generated substantial cash reserves to manage the market sensitivities. However, the Covid-19 pandemic and associated lockdown can cause extreme volatility in power prices in the short term. Nevertheless, the Company has been able to generate robust cash flows despite challenging times. Overall, it has proven operational and financial performance from the existing portfolio and having a healthy pipeline of attractive investment opportunities to emerge stronger in the long term.

 (Source: Company Presentation)

Based on the high-quality acquisitions, boosted liquidity, improved financials, healthy balance sheet, strong asset base, encouraging industry dynamics, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Greencoat UK Wind PLC at the current market price of GBX 132.23 (as on 28 May 2021 at 11:15 AM GMT) with lower double-digit upside potential based on 21.18x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

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