Ventus Revaluations

[UncleEbenezer]

Ventus annual reports mention reducing the discount rate assumed in valuing their assets, thus revaluing the portfolio.

Is that really valid? Surely the value of their assets should be set according to actual market transactions, per unit of generation and as adjusted for costs and other issues. Should it not be for the stock market, as opposed to the fund managers, to set the value of an asset with reference to risk and returns relative to comparable assets, and indeed the market in general?

[baronspill]

It appears the NAVs are now more accurate, in terms of market rates, than they were. I suspect previously reported NAVs underplayed the market / real valuations.

Every year it seems, in recent history, a metric has been changed to boost the NAV, but to be fair this time energy yields have been reassessed too and have had an overall negative impact on valuations.

NAVs on the C shares are still going up whilst sizeable dividends are being paid. It was communicated a while back to expect NAVs to reduce after accounting for payment of dividends and depreciation.

[SpinDoctor]

JLEN, TRIG and UKW - larger quoted companies in the Green Energy generation sector - all determine NAV using discounted cash flow and periodically review discount rates.

Medium term NAVs are of course at risk if capital and revenue returns remain muted. Note that the larger quoted vehicles listed above are committed to maintenance (at least) of NAV and have an IRR close to 8% and charges ratios close to 1%; Ventus charges are around 3%.

[UncleEbenezer]

Ventus AGM presentation at https://www.rns-pdf.londonstockexchange ... 8-7-24.pdf

It's a bunch of powerpoint stuff, so no actual information unless you were there to hear the presenter. But a slide on Page 9 seems to address my longest-standing concern: Lease extension and asset lifespan. The slide is entitled "Example: Extension / Repowering" and the bullet point of interest is "Act to maintain optionality; e.g. 50% of leases are extendable".

Was anyone there? Any insights?

[127tolmers]

I attended the AGMs and it was probably the best of the last seven or so. The boards and manager seem to have taken on and worked through most of the issues raised by shareholders over the years.

They have looked at improving operational performance and seem to have a strategy for extension of asset life. Shareholders need to remember that there are operation costs paid within the manager 2% mgt fee that would normally be found in the investee companies costs. However this makes it difficult to compare VCT fees.

They have now completed a review of the last 3 wind-farms against the investment basis as mentioned in the annual report. The review was downwards and they were coy about releasing data other than to say it was in the latest NAV. Halesworth appears to have been the biggest disappointment due to micro climate wind levels being lower.

There were a number of shareholder questions.

They have given up on buybacks as not providing any benefit now the discounts have narrowed.

They were unaware of the recent Hazel Renewable VCT top up (that complied with new VCT rules) when challenged over why no resolution to allot more shares. They promised to look into this.

They will not institute quarterly NAV reporting but will try to produce a third update in the year.

VCT directors were challenged to put their own money into the VCTs. Some agreed.

While it was good to see the mgt fee decline, directors were challenged to relook at the cost cap which is still stuck at 3.6%.

The class merger appears to be dead. Directors see too many problems with the performance fee and the low discount level has removed the incentive, coupled with the different asset mix in each class.

There were a lot of technical questions which I won't attempt to summarise. However they were good questions and got thorough answers.

One of the biggest questions facing the boards is what discount rate to use in calculating the NAVs. Cash flows from wind-farms are discounted at between 7.50 and 7.75%. (A lower discount rate would increase NAVs and trigger higher mgt fees) The boards were aware of the recent offer for JL Infrastructure. There is a risk for the VCTs of such an opportunistic bid at a premium preventing shareholders getting full value.

JL Infrastructure construct their discount rate by taking 5 year gilts at 2.51% and adding on a risk premium. For the UK they are using a total discount of 7.32%. Despite this their bidder has offered 20% above NAV which according to JL accounts would represent a real discount rate of 5.32%. Ventus shareholders might want to reflect on whether the discount rate for wind-farms should be higher or lower than that of a government infrastructure project fund. A 2% reduction in Ventus discount is in the ball park of another 20p/share.

There is a continuation vote coming up in 2020. Directors seemed a bit surprised that VCT shareholders had an expectation of some goodies to encourage a positive vote. It is to be hoped that they get an independent party to properly value the assets (via an orderly sale over the 3 years permitted) to allow shareholders to make an informed decision at the time.