The Renewable Inrastructure Group (TRIG)

[Dod101]

Actually TRIG is not an investment trust as we all know them as in F & C, Alliance and so on. It is an investment company and a self managed Alternative Investment Fund per the EU regulations and is incorporated in Guernsey. They tell us in the Annual Report that this structure gives the same tax advantages to shareholders as a UK REIT which is that the company does not pay tax on capital gains.

Simply because a company is a member of the AIC does not make it an investment trust, but it does make it an investment company.

I am not sure that any of this matters too much, and I do not think that Simoan's concern about dividends not being covered by free cash flow is actually correct, at least not if you study and believe the remarks from the Chairman.

I have not invested at the moment but I do think it is worth a bit of study of this now longish thread to get a good understanding of it.

Dod

[Dod101]

The Annual Report makes an interesting read. Carrying on about IT status, they do say at one point that 'the Company conducts and intends to continue to conduct its affairs such that it would qualify as an investment trust if it were resident in the UK'

mc2fool might be interested to know that although earnings increased in 2019 to £162 million before tax from £123 million in 2018, EPS actually reduced from 11.7p in 2018 to 11.4p in 2019, presumably as a result of the dilution by two fundraisings in 2019, resulting in a big increase in the number of shares in issue.

Dod

[simoan]

I do not think that Simoan's concern about dividends not being covered by free cash flow is actually correct, at least not if you study and believe the remarks from the Chairman.
Dod

How dare you suggest the Chairman knows better than me!! And in the process insinuate that I don't check my facts! Perhaps some of the money to pay the dividend comes out of his piggy bank then? Here are the last 6 years per share Free cashflow and Dividend payments:

Value         | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | Total (ps)
FCF (ps)      | 6.57 | 4.64 | 5.37 | 6.05 | 4.94 | 6.12 |      33.69
Dividend (ps) | 6.03 | 6.15 | 6.23 | 6.38 | 6.48 | 6.64 |      37.91

The data is from a reliable source, Refinitiv. So they have paid out 4.22p more than they have made in free cashlow. Basically, they keep asking shareholders for money and then give some of it back to them. What's the point of that?

All the best, Si

[richfool]

I'm slightly puzzled why some investors seem less enthusiastic about TRIG.

I tend to work on the premise that Mr Market knows better than I do. Thus if it's prospects were that poor, I ponder, why would it be trading at a premium of +22.7%, even now that its dividend yield has been driven down to 4.84% by its good capital performance. (E.g. Capital performance: 1 year: +9%. 2 Years: +22%. 3 years: +26%. 5 years: +34%.). It's dividend was increased earlier this year.

The company's factsheet, accessible through the HL link below, indicates it is managed by leading infrastructure managers InfraRed, has ESG objectives, and invests in a diversified portfolio across a range of renewable infrastructure assets (including wind, solar and storage) in diversified geographies.

https://www.hl.co.uk/shares/shares-sear ... up-ord-npv

Surely, as the world seeks to eliminate the use of fossil fuels there will be a continuing and growing demand for renewable energy.

I hold JLEN and TRIG and would rather hold them than BP or Shell.

[Dod101]

I do not think that Simoan's concern about dividends not being covered by free cash flow is actually correct, at least not if you study and believe the remarks from the Chairman.
Dod

How dare you suggest the Chairman knows better than me!! And in the process insinuate that I don't check my facts! Perhaps some of the money to pay the dividend comes out of his piggy bank then? Here are the last 6 years per share Free cashflow and Dividend payments:

Value         | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | Total (ps)
FCF (ps)      | 6.57 | 4.64 | 5.37 | 6.05 | 4.94 | 6.12 |      33.69
Dividend (ps) | 6.03 | 6.15 | 6.23 | 6.38 | 6.48 | 6.64 |      37.91

The data is from a reliable source, Refinitiv. So they have paid out 4.22p more than they have made in free cashlow. Basically, they keep asking shareholders for money and then give some of it back to them. What's the point of that?

All the best, Si

I assume that your comments do not need to be taken too seriously but certainly your numbers are not very encouraging. I am not familiar with such companies so find it difficult to find my way around. I guess they would say that whilst acknowledging these numbers,the free cash flow is at least to an extent in their control because it includes not just dividends paid up to them from operations, interest and repayment of loans etc as well as expenses such as capex and running costs. You could well be correct though in your summary that some of the funds raised are used to pay dividends and so you could say that the money is just circulating, and of course diluting those who do not participate, a pointless exercise as you say.

Dod

[Dod101]

I'm slightly puzzled why some investors seem less enthusiastic about TRIG.

I tend to work on the premise that Mr Market knows better than I do. Thus if it's prospects were that poor, I ponder, why would it be trading at a premium of +22.7%, even now that its dividend yield has been driven down to 4.84% by its good capital performance. (E.g. Capital performance: 1 year: +9%. 2 Years: +22%. 3 years: +26%. 5 years: +34%.). It's dividend was increased earlier this year.

The company's factsheet, accessible through the HL link below, indicates it is managed by leading infrastructure managers InfraRed, has ESG objectives, and invests in a diversified portfolio across a range of renewable infrastructure assets (including wind, solar and storage) in diversified geographies.

https://www.hl.co.uk/shares/shares-sear ... up-ord-npv

Surely, as the world seeks to eliminate the use of fossil fuels there will be a continuing and growing demand for renewable energy.

I hold JLEN and TRIG and would rather hold them than BP or Shell.

Your comments and thoughts are exactly why I put up my comments in the first place. As far as the dividend is concerned, it is not declared once they have a trading result but is set as a target at the beginning of a trading period and so just becomes an expense to be paid for either from capital gains or revenue and I think that is the key to simoan's point. I do not know about other infrastructure companies, but 3i Infrastructure does the same. In fact, the investment trust RIT does so as well and makes most of the payment from capital. I think that is the point. They do not mind whether the dividend is paid from revenue or capital.

Dod

[simoan]

I do not think that Simoan's concern about dividends not being covered by free cash flow is actually correct, at least not if you study and believe the remarks from the Chairman.
Dod

How dare you suggest the Chairman knows better than me!! And in the process insinuate that I don't check my facts! Perhaps some of the money to pay the dividend comes out of his piggy bank then? Here are the last 6 years per share Free cashflow and Dividend payments:

Value         | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | Total (ps)
FCF (ps)      | 6.57 | 4.64 | 5.37 | 6.05 | 4.94 | 6.12 |      33.69
Dividend (ps) | 6.03 | 6.15 | 6.23 | 6.38 | 6.48 | 6.64 |      37.91

The data is from a reliable source, Refinitiv. So they have paid out 4.22p more than they have made in free cashlow. Basically, they keep asking shareholders for money and then give some of it back to them. What's the point of that?

All the best, Si

I assume that your comments do not need to be taken too seriously but certainly your numbers are not very encouraging. I am not familiar with such companies so find it difficult to find my way around. I guess they would say that whilst acknowledging these numbers,the free cash flow is at least to an extent in their control because it includes not just dividends paid up to them from operations, interest and repayment of loans etc as well as expenses such as capex and running costs. You could well be correct though in your summary that some of the funds raised are used to pay dividends and so you could say that the money is just circulating, and of course diluting those who do not participate, a pointless exercise as you say.

Dod

You don't need to understand what a company does - you can just treat it as a blackbox in a really simplistic way if you like i.e. equity and debt funding goes in, revenue is generated from business operations and out the other end comes cash. Free cashflow is what's left once all the bills have been paid. It can be used to pay down debt, buyback shares, fund acquisitions and pay dividends. IMHO it is exceptionally important and many private investors seem to pay very little attention to it.

All the best, Si

[88V8]

....they keep asking shareholders for momey then give some of it back to them. What's the point of that?

Well, Ponzi my word!!

I distrust novel investments. Flavour of the moment. Virtue signalling. So 'green', 'renewables', 'eco' all get the thumbs down from me.

Premium to NAV? Why??? Merited by what??

This green stuff is overly propped up by taxpayers, for my taste. At the whim of govt.

So although BERI is resource heavy, that is much my preferred avenue of segwaying into 'renewables'. Let the manager gradually bring in a few of these new-fanglutions, whilst supporting the yield with a solid foundation of holes in the ground and dino juice.
TWIG? I think I'll wait until it's a twee.

V8

[simoan]

....they keep asking shareholders for momey then give some of it back to them. What's the point of that?

Well, Ponzi my word!!

I distrust novel investments. Flavour of the moment. Virtue signalling. So 'green', 'renewables', 'eco' all get the thumbs down from me.

Premium to NAV? Why??? Merited by what??

This green stuff is overly propped up by taxpayers, for my taste. At the whim of govt.

So although BERI is resource heavy, that is much my preferred avenue of segwaying into 'renewables'. Let the manager gradually bring in a few of these new-fanglutions, whilst supporting the yield with a solid foundation of holes in the ground and dino juice.
TWIG? I think I'll wait until it's a twee.

V8

g
A lot of that is my sentiment too. And why, presently, I prefer to play the electrification story by buying into NG. NG are going to be distributing the overwhelming majority of electricity in England and Wales for decades to come. And if the domestic heat load gradually switches from gas to electricity (its going to take decades to happen) then as the gas transmission business winds down, the electrical distribution business picks up the load. Whether renewable or not, NG carries on as usual.

RVF

Perhaps I'm missing something but I can't see how National Grid is a better investment? It's just as much subject to the whims of changes in government policy as TRIG. My approach is to generally avoid investments which are so directly beholden to the vicissitudes of politics. Obviously, indirect effects are less easy to protect yourself against as we have seen with the government response to the virus.

So TRIG is funded by equity but look at the debt on the balance sheet of NG! I know which balance sheet I'd prefer. And you really don't want to look at FCF vs dividends for FYs 2018-20. So where is the NG dividend payment coming from these days? Bondholders is the answer. And of course, NG trades at an even higher premium to asset value than TRIG.

Just saying...
All the best, Si

[Dod101]

I think also that there is a danger of over analysing situations. NG and its counterpart in Scotland (at least most of Scotland, Scottish Power has the rest) SSE, are both regulated with what would in many businesses be an overload of debt. I think now that SSE has disposed of its retail side they are more comparable and share the same benefits, those that RVF has described. I hold both and will leave the renewables side for now at least.

Dod

[simoan]

I think also that there is a danger of over analysing situations. NG and its counterpart in Scotland (at least most of Scotland, Scottish Power has the rest) SSE, are both regulated with what would in many businesses be an overload of debt. I think now that SSE has disposed of its retail side they are more comparable and share the same benefits, those that RVF has described. I hold both and will leave the renewables side for now at least.

Dod

It's not over analysis though. The only reason to hold both companies is for the dividend yield. If you don't care where the dividend comes from, then fine, but if it's not ultimately sustainable you lose the dividend and will suffer a significant capital loss as well, as many people invested in high yield equities are finding out currently. There's a reason why I'm only down 3.7% YTD which BTW I'm not happy with!

All the best, Si

[Dod101]

I am very interested in yield since I live off my investment income and am therefore with both of these shares quite prepared to see only modest growth n capital. I think both will try to give us modest growth in dividend as well and that suits me fine. Growth can come from elsewhere. Horses and courses and all that.

If you are down by only 3.7% YTD then good for you. I am down nearer to 12% in capital but 2/3rds of my portfolio by value is income oriented but not very high yield.

Dod

[simoan]

I am very interested in yield since I live off my investment income and am therefore with both of these shares quite prepared to see only modest growth n capital. I think both will try to give us modest growth in dividend as well and that suits me fine. Growth can come from elsewhere. Horses and courses and all that.

If you are down by only 3.7% YTD then good for you. I am down nearer to 12% in capital but 2/3rds of my portfolio by value is income oriented but not very high yield.

Dod

I used to believe investing for income was useful, and who doesn't like receiving dividends? However, I now believe it is wrong thinking to separate capital and income in this way. Some big pennies dropped for me some time ago and my approach and investment results have improved greatly as a result. The largest penny that smacked me on the head was to look at my investments in terms of Total Return only and treat income and capital as equally fungible. However, it's not something I want to spend time discussing and it is OT on this thread. so I will stop now

All the best, Si

[jackdaww]

I am very interested in yield since I live off my investment income and am therefore with both of these shares quite prepared to see only modest growth n capital. I think both will try to give us modest growth in dividend as well and that suits me fine. Growth can come from elsewhere. Horses and courses and all that.

If you are down by only 3.7% YTD then good for you. I am down nearer to 12% in capital but 2/3rds of my portfolio by value is income oriented but not very high yield.

Dod

I used to believe investing for income was useful, and who doesn't like receiving dividends? However, I now believe it is wrong thinking to separate capital and income in this way. Some big pennies dropped for me some time ago and my approach and investment results have improved greatly as a result. The largest penny that smacked me on the head was to look at my investments in terms of Total Return only and treat income and capital as equally fungible. However, it's not something I want to spend time discussing and it is OT on this thread. so I will stop now

All the best, Si

==========================

a similar penny dropped for me a few years back .

there is no magic about dividends , they are just a return of capital , which drops on XD date.

[88V8]

there is no magic about dividends , they are just a return of capital...

As a rule, dividends roll round like the seasons.
Capital growth does not.

V8

[simoan]

there is no magic about dividends , they are just a return of capital...

As a rule, dividends roll round like the seasons.
Capital growth does not.

V8

Yep. Just that spring, summer and autumn get cancelled every now and again and you end up with a permanent winter!
All the best, Si

[Dod101]

No point in this argument again, but I do not see dividends as a return of capital. They are the reward to the investor for lending his capital to an enterprise. They are a share of the profit of the enterprise.

Dod

[funduffer]

The whole Renewable Energy Infrastructure sector looks interesting, not just TRIG.

This thread, and the discussion on Investment Strategies is very informative:

viewtopic.php?f=8&t=17343

The business model of these companies is easy to understand, but the worry is the large premiums to NAV. It would be interesting to know how the NAV is calculated.

Anyway I have bitten the bullet and made modest investments in wind energy (Greencoat UK Wind - UFW) and solar energy (NextEnergy Solar fund), where the premiums are not so eye-watering as TRG. Yielding 5.3% and 6.8% respectively.

Hopefully a more stable income stream than HYP has been this year!

FD

[Urbandreamer]

The business model of these companies is easy to understand, but the worry is the large premiums to NAV. It would be interesting to know how the NAV is calculated.

FD

This is not a case that is specific to renewables. How much do we trust the NAV of companies who invest in shopping centres? The value of the asset is very much based upon what that asset can return. If that changes then the historic NAV will be wrong.

I'm not sure that the word "worry" is the one that I'd pick, but in general I agree that the large premium to NAV is a concern. Just how much is due to investors desire to own and how much is due to valid/invalid opinion as to what the correct NAV should be? There is certainly an argument that TRIG's NAV may be incorrect (overstated), being based upon historic electricity contracts.

It is my understanding that governments desire/require more low/zero carbon electricity. Hence more generation will need to be built. I can quite see TRIG returning to the market for more funds in the future. Some may argue that they should retain earnings to cover those investments, however I suspect that the size of investment required could not be met by simply retaining earnings. In the meantime paying a dividend signals the intention to fit alongside the likes of SSE.

As I said, I have quite enough TRIG, so I need to view such things in terms of risk and opertunety cost.
I need to think a bit more about simoan's comments about free cash flow. That certainly doesn't send a good signal. Though I do note that dividend cover is quite good.

[simoan]

The business model of these companies is easy to understand, but the worry is the large premiums to NAV. It would be interesting to know how the NAV is calculated.

FD

This is not a case that is specific to renewables. How much do we trust the NAV of companies who invest in shopping centres? The value of the asset is very much based upon what that asset can return. If that changes then the historic NAV will be wrong.

I'm not sure that the word "worry" is the one that I'd pick, but in general I agree that the large premium to NAV is a concern. Just how much is due to investors desire to own and how much is due to valid/invalid opinion as to what the correct NAV should be? There is certainly an argument that TRIG's NAV may be incorrect (overstated), being based upon historic electricity contracts.

I took a look at the 2019 Annual Report before selling last week to check how NAV was calculated. As mentioned, I don't like the use of discounted cashflow models for calculating NAV because they use too many assumptions about the future for me. Here is what it says:

The Investment Manager is responsible for carrying out the fair market valuation of the Group’s investments which is presented to the
Directors for their approval and adoption. A valuation is carried out on a six-monthly basis as at 30 June and 31 December each year.

For non-market traded investments (being all the investments in the current portfolio), the valuation is based on a discounted cash
flow methodology and adjusted in accordance with the European Venture Capital Associations’ valuation guidelines where appropriate
to comply with IFRS 13 and IFRS 10, given the special nature of infrastructure investments. Where an investment is traded, a market
quote is used.

The valuation for each investment in the portfolio is derived from the application of an appropriate discount rate to reflect the perceived
risk to the investment’s future cash flows to give the present value of those cash flows. The Investment Manager exercises its judgment
in assessing both the expected future cash flows from each investment based on the project’s expected life and the financial models
produced by each project company and the appropriate discount rate to apply. This methodology has not changed since the inception
of the Company.

I also didn't like the fact the NAV calculation is made by the Investment Manager rather than an independent third party.

All the best, Si