stacker512 wrote:daveh wrote:Finals:
Interesting results. The dividend is uncovered (0.94x) but it looks like income should start ramping up quite quickly as more and larger projects start coming online.
Thanks for posting the Finals here. (I was debating posting them earlier but wasn't sure if I was going to do it correctly)
The dividend cover - HL reports that the cover for previous years were -0.05, -0.25, 1.68, -0.84 for the years 2022, 2021, 2020, 2019 respectively. It suggests that their current cover of 0.94 is one of the more decent they have had in recent times. Do you think this is something to worry about? (I hold GSF).
I also wonder if 57% of GSF's power generation portfolio being in "Pre-construction and construction phase" is good. Are they trying to do too much or is this roughly expected in this field? (I obviously would benefit in reading the full report properly)
The company thinks it is good.
Its mentioned under divi cover in Q&As
Q: How do you see dividend cover evolving over the next two years?
The Company generated cash flow7 of 6p per share which translates into 4.8% cash yield per NAV or 5.5% cash yield per share price as at 31 March 2023. The Company's dividend yield was 6.9% based on the 31 March 2023 closing share price.
The Company is following a strategy of acquiring assets at the project rights stage and constructing them utilising in-house technical expertise. This enables energy storage system procurement at competitive costs and flexible battery system design to accommodate future market uncertainty. In addition, rather than taking a simple approach of replicating similar assets in the same grid over and over, the Company entered new geographies to deliver a diversified portfolio with less exposure to single revenue drivers. While this approach requires longer lead times, the superiority of the strategy is evidenced by the cashflow of the operational portfolio, which only accounts for 30% of total NAV and provided 90%8 operational dividend cover, based on dividends paid in the period. On a consolidated fund level, these operational assets provided 0.54x dividend cover for the fund. Given the over 20-year life of energy storage projects, management believes a careful approach to investment and construction is prudent for energy storage.
7 Operational portfolio EBITDA minus holding company operating expenses plus external net interest income
8 This figure is based on portfolio EBITDA only and does not include HoldCo or PLC expenses
The Company raised £150 million in April 2022. While this reduced dividend coverage by 26.3%, raising equity capital upfront enabled the Company to gain further financial security without excessive reliance on external debt. It also supported large strategic acquisitions at an attractive price (over 500MW acquired during the reported period).
The Company's ability to cover its dividends through the generation of revenues from its operational asset portfolio undergoes significant change over the Company's lifecycle. Since inception of the fund, we have delivered on our promise to pay a 7% dividend to investors each year, despite our early-stage investments into pre-construction assets which generate cashflows only when operational. Whilst our project-rights acquisition strategy has allowed for industry-leading levels of capex per MW, exceptional capital discipline and a robust foundation for high-performing operational assets, it is a longer-term approach that prioritises growth over dividend cover in the short term. Our strong belief in diversification as a key strategy for success in the storage market meant we focused on entering new geographies. This may have prolonged the timeline for the buildout of our operational portfolio, but we believe the revenues generated across five grids or more will be the necessary basis to manage the merchant volatility and ensure a stable dividend cover.
If revenues were to remain at the current level across each grid, further operational capacity will need to be online to fully cover dividends at both a portfolio and PLC (consolidated) level. Currently, we are at a crucial juncture as a substantial number of assets are poised to become operational in the near future across multiple grids, with 130 MW scheduled to come online in GB over the next six months, and the landmark 200 MW Big Rock project coming online in California 18 months after that. This strategic diversification and the upcoming increase in operational capacity will leave us well placed to cover dividends and drive sustainable growth.
and this is their answer on the question of leverage:
Q: What is the Investment Manager's view on utilising leverage for energy storage?
The utility-scale energy storage market has evolved rapidly in the last five to six years around a merchant revenue stack, which meant there was limited appetite for lenders to provide leverage to investments on attractive terms. As the market has matured and lenders have become more familiar with the energy storage business model, they have become more comfortable lending against certain conservative revenue assumptions, underpinned by fundamental grid demands.
Despite this progress, however, we don't intend to take on excess leverage to build-out our portfolio (with a limit of 30% of GAV, or c. £230m, as set out within the Company's investment policy on page 38 of the annual report). Minimal debt is currently held across the portfolio given the high interest rate environment, which means that the Company is not servicing highly priced debt. Resilience of the Company's balance sheet is important, especially when we are seeing revenue drop in some of the grids the Company operates in. The Company expects to be able to build out its portfolio with a maximum debt below the 30% thresholds and is continually working with lenders to ensure appropriately sized facilities are in place to be utilised when prevailing funding conditions are attractive to make use of such leverage. We successfully increased our revolving credit facility post period end from £15 million to £50 million, with a four-year term, to support the construction of our next phase of projects to be brought online in the coming months.