The Renewable Inrastructure Group (TRIG)

[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

[ReallyVeryFoolish]

....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

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

[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

[ReallyVeryFoolish]

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

Very simply, NG is not impacted in any way where the electricity comes from. It's a regulated utility, fair enough. But if the economy is renewable electrified or not, NG still transmits and profits from every single kw/hr of electricity used. The dividend stream, which is why I bought back into NG now after the Corbyn scare, seems secure enough. No matter the origin of that power. Whether it's a better investment ultimately, I don't know. But the froth on the renewables energy sector is a very big hurdle to me investing directly. Another possible indirect investment route in a similar vein is to buy copper miners or electrical distribution equipment makers. Sadly, these days we have no domestic industry to speak of these days.

RVF

[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.

[ReallyVeryFoolish]

I know it's been done to death. But my aversion to such a large premium, is forward rather than backwards looking renewable energy prices/subsidies/reduced subsidies. The trend is clearly down for both prices and subsidies as more capacity comes online from much bigger wind turbines. And the sentiment/froth over the entire sector. So I am sitting on the sidelines having sold out of a too small allocation of ORIT shares at IPO.

RVF

[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

[Dod101]

The premium to NAV is interesting as is how the NAV is calculated. I read the Annual Report and it is all there as simoan has indicated. I agree that an independent valuer would be better than the company itself doing the calculation. For instance, at a stroke, they extended the lives of assets by a year recently and thereby increased the value of the assets. Setting accurate (or at least as accurate as they can be) parameters is vital and the Directors have a clear conflict of interest in setting that valuation themselves.

Irrespective of the so called methodology, the NAV needs to reflect the price the assets would fetch in an open sale, or should that be the cost of replacement, or even the cost of construction? The accounting/auditing profession has got itself in a real pickle with the obsession with current value accounting . In the old days, I guess the carrying value of the assets would have been the cost of construction, maybe with a side note to give some indication of current value, but nowadays it is more or less what the Directors want it to be (although they would say that it reflects their estimate of current value)

I think though that for this sort of company the sustainable yield is what most investors will be interested in. What we need to remember is that there is no instantly measurable 'value' unlike say with an IT invested in quoted shares. With such a high premium to NAV, it can be seen that the market is assigning a much higher value to the assets than the directors and thus some could argue that the directors' valuation is too low!

Dod

[jackdaww]

very interesting topic.

and i have seen enough and sold all my renewables today at break even .

another step to shaking off my pernicious high yield mistakes.

[Urbandreamer]

I first started building my stake in TRIG a year ago.

One year is too short a period to really get a feel for growth, but my XIRR is reported as over 5%. The 5 year share price graph looks fairly good too. I'll accept that the main reason to even consider buying a share like this is income that we hope tracks inflation, however I'm not convinced that we won't at least see share price growth at respectable rates.

It all depends upon the future of the renewable sector and TRIG's managment.

There is a requirement for energy suppliers to source a certain amount of power from renewable sources. A number of companies have been fined for failing to do so.
https://eandt.theiet.org/content/articl ... e-targets/

That said, they don't have to buy it from TRIG and I'm sure that we all know of companies that have folded due to cash flow issues.