The Renewables Infrastructure Group (TRIG)

[idpickering]

Ok, I’m not keen on my share of the company being “diluted”, thanks Dod for that term I think, but I can live with it. I shan’t be taking part in the issue though.

For me, it’s what they’re doing with the money that counts, reducing debt and maybe buying another company focused on solar energy, thereby expanding their portfolio, and mine too.

Ian.

[daveh]

I seem to remember someone (Dod, perhaps?) commenting that the issue of new capital by infrastructure companies is common as a way of raising cash for new projects. It is something one has to live with, if I understand a-right.

Arb.

Shareholders not only live with new share issues and suffer the consequences which are, unless they keep taking up their share of the new issues (if they can!)sometimes significant dilution. Anyway is this new issue not part of one issued back in March?

Dod

Yes, but you are owning a smaller share of a bigger company so, all things being equal, the value of your share of the company should remain much the same. Better to issue new share capital to invest in new projects than to borrow once the borrowing reaches a sensible level. I'll let the management get on with running the company and assume they are buying good assets at a decent price that will continue to bring in the income to pay the dividends

[simoan]

I seem to remember someone (Dod, perhaps?) commenting that the issue of new capital by infrastructure companies is common as a way of raising cash for new projects. It is something one has to live with, if I understand a-right.

Arb.

It's a bit like a Ponzi scheme! They have to keep finding new investors to keep the whole thing afloat. Since they pay all the cashflow (and a bit more) out as dividends it means they have nothing at all left for capital expenditure i.e. to invest for the future or provide maintenance for the existing assets. If the music stops the dividend gets chopped, and that is the only reason to invest.

All the best, Si

[Dod101]

I seem to remember someone (Dod, perhaps?) commenting that the issue of new capital by infrastructure companies is common as a way of raising cash for new projects. It is something one has to live with, if I understand a-right.

Arb.

Shareholders not only live with new share issues and suffer the consequences which are, unless they keep taking up their share of the new issues (if they can!)sometimes significant dilution. Anyway is this new issue not part of one issued back in March?

Dod

Yes, but you are owning a smaller share of a bigger company so, all things being equal, the value of your share of the company should remain much the same. Better to issue new share capital to invest in new projects than to borrow once the borrowing reaches a sensible level. I'll let the management get on with running the company and assume they are buying good assets at a decent price that will continue to bring in the income to pay the dividends

simoan has made my point. The idea is not for the value to remain the same, the idea is for it to grow, and more dividends will be used to feed all those extra mouths rather than increase EPS. The only businesses to invest in are those where they can on the whole, generate profits which pay for expansion as well as pay out some modest dividends.

Dod

[simoan]

Shareholders not only live with new share issues and suffer the consequences which are, unless they keep taking up their share of the new issues (if they can!)sometimes significant dilution. Anyway is this new issue not part of one issued back in March?

Dod

Yes, but you are owning a smaller share of a bigger company so, all things being equal, the value of your share of the company should remain much the same. Better to issue new share capital to invest in new projects than to borrow once the borrowing reaches a sensible level. I'll let the management get on with running the company and assume they are buying good assets at a decent price that will continue to bring in the income to pay the dividends

simoan has made my point. The idea is not for the value to remain the same, the idea is for it to grow, and more dividends will be used to feed all those extra mouths rather than increase EPS. The only businesses to invest in are those where they can on the whole, generate profits which pay for expansion as well as pay out some modest dividends.

Dod

Funnily enough I just received an email from Primary Bid offering me the the chance to take part in this placing at 124p. I laughed in their faces

All the best, Si

[Arborbridge]

I seem to remember someone (Dod, perhaps?) commenting that the issue of new capital by infrastructure companies is common as a way of raising cash for new projects. It is something one has to live with, if I understand a-right.

Arb.

It's a bit like a Ponzi scheme! They have to keep finding new investors to keep the whole thing afloat. Since they pay all the cashflow (and a bit more) out as dividends it means they have nothing at all left for capital expenditure i.e. to invest for the future or provide maintenance for the existing assets. If the music stops the dividend gets chopped, and that is the only reason to invest.

All the best, Si

Is that true? The bit about paying out the cash raised in dividends. The distinguishing factor of a Ponzi scheme is that it depends on raising money from the greater fools to feed the lesser fools - but this is not what Dod, for example, explains they are doing.

So the question is: who is correct? Are they just pulling cash in to pay out, or are they pulling cash in to make a bigger company which will benefit shareholders?

I think this needs some discussion, rather than just a couple of views expressed - both of which could have been pulled from mid air.

Arb.

[Dod101]

I seem to remember someone (Dod, perhaps?) commenting that the issue of new capital by infrastructure companies is common as a way of raising cash for new projects. It is something one has to live with, if I understand a-right.

Arb.

It's a bit like a Ponzi scheme! They have to keep finding new investors to keep the whole thing afloat. Since they pay all the cashflow (and a bit more) out as dividends it means they have nothing at all left for capital expenditure i.e. to invest for the future or provide maintenance for the existing assets. If the music stops the dividend gets chopped, and that is the only reason to invest.

All the best, Si

Is that true? The bit about paying out the cash raised in dividends. The distinguishing factor of a Ponzi scheme is that it depends on raising money from the greater fools to feed the lesser fools - but this is not what Dod, for example, explains they are doing.

So the question is: who is correct? Are they just pulling cash in to pay out, or are they pulling cash in to make a bigger company which will benefit shareholders?

I think this needs some discussion, rather than just a couple of views expressed - both of which could have been pulled from mid air.

Arb.

It is not actually a Ponzi scheme and this has been discussed in detail in the past. I think simoan is being slightly facetious but at the same time, companies like TRIG pay out virtually all of their earnings as dividends and thus if they want to expand or to pay down the parent company debt, they seek new cash from shareholders to do so. This increases the number of shares in issue and that has two effects; the one is to reduce the economic interest of individual shareholders if they do not wish to subscribe for new shares (and sometimes they are not even given the chance to) thus reducing the chances of a decent increase in the NAV per share and thus the share price, and the other is that the EPS is often held back, thus keeping any dividend increase down. The only real advantage that I see is that there is presumably a benefit from increased scale but even management fees are usually ad valorem so that reduced charges are often minimal.

They are making a bigger company but the benefit to existing shareholders, even if they can and do participate is modest at best. The investments we want are where companies can generate internal capital gains/profits so that they can expand the business without reverting to shareholders at every turn.

Dod

[nmdhqbc]

https://www.trig-ltd.com/wp-content/upl ... Report.pdf

I have always been unsure how these things would work with no more issues of equity.

on page 20 (22 page of the pdf file) they show a graph of the projected revenues. as you would expect it declines over time as the assets get old and retire. so i guess this is their projections with no more assets being purchased. with no more issues of equity would they just let the dividend slowly decline in the later years or perhaps they'd have enough excess cash flow after dividends have been paid to make new investments?

on page 6 it says "After operating and finance costs, net cash flow covered the cash dividend 1.28 times4, or 2.1 times before the impact of repaying project-level debt." I'm too dumb to interpret this. not sure if this would be enough excess cash to make the trust perpetual in its income generation. also not sure if this is a typical amount of dividend cover for the trust. or are these types of trusts not meant to last forever?

[simoan]

https://www.trig-ltd.com/wp-content/uploads/2021/08/TRIG-H1-2021-Interim-Report.pdf

I have always been unsure how these things would work with no more issues of equity.

on page 20 (22 page of the pdf file) they show a graph of the projected revenues. as you would expect it declines over time as the assets get old and retire. so i guess this is their projections with no more assets being purchased. with no more issues of equity would they just let the dividend slowly decline in the later years or perhaps they'd have enough excess cash flow after dividends have been paid to make new investments?

on page 6 it says "After operating and finance costs, net cash flow covered the cash dividend 1.28 times4, or 2.1 times before the impact of repaying project-level debt." I'm too dumb to interpret this. not sure if this would be enough excess cash to make the trust perpetual in its income generation. also not sure if this is a typical amount of dividend cover for the trust. or are these types of trusts not meant to last forever?

This is all smoke and mirrors. You have to remember that all the per share metrics are a moveable feast with a company that issues so much new equity on a regular basis. Actual operating profit for the 6 months to June 30th 2021 was only £9.634m. So how do they manage to pay out £62.4m (not including SCRIPs) in dividends? Profit Before Tax (=£36.8m) was flattered by gains on FX Exchange to the tune of £27m - is that sustainable? And the cashflow statement was further flattered by £240m from "Proceeds from issue of share capital during period". So without the equity raise the dividend is badly uncovered.

If you cant work out where the £62.4m dividend payment came from when Profit Before Tax was only £36.8m, and why they are doing another equity raise, then you really shouldn't be holding this share. Unless I'm mistaken, it look like new investors are putting in fresh equity to fund ongoing dividends for earlier investors. As I say, it's a bit like a Ponzi scheme.

All the best, Si

[Arborbridge]

This is all smoke and mirrors. You have to remember that all the per share metrics are a moveable feast with a company that issues so much new equity on a regular basis. Actual operating profit for the 6 months to June 30th 2021 was only £9.634m. So how do they manage to pay out £62.4m (not including SCRIPs) in dividends? Profit Before Tax (=£36.8m) was flattered by gains on FX Exchange to the tune of £27m - is that sustainable? And the cashflow statement was further flattered by £240m from "Proceeds from issue of share capital during period". So without the equity raise the dividend is badly uncovered.

If you cant work out where the £62.4m dividend payment came from when Profit Before Tax was only £36.8m, and why they are doing another equity raise, then you really shouldn't be holding this share. Unless I'm mistaken, it look like new investors are putting in fresh equity to fund ongoing dividends for earlier investors. As I say, it's a bit like a Ponzi scheme.

All the best, Si

Put like that, my learned friend would seem to be correct. Is there a council for the defence?

Arb.

[simoan]

This is all smoke and mirrors. You have to remember that all the per share metrics are a moveable feast with a company that issues so much new equity on a regular basis. Actual operating profit for the 6 months to June 30th 2021 was only £9.634m. So how do they manage to pay out £62.4m (not including SCRIPs) in dividends? Profit Before Tax (=£36.8m) was flattered by gains on FX Exchange to the tune of £27m - is that sustainable? And the cashflow statement was further flattered by £240m from "Proceeds from issue of share capital during period". So without the equity raise the dividend is badly uncovered.

If you cant work out where the £62.4m dividend payment came from when Profit Before Tax was only £36.8m, and why they are doing another equity raise, then you really shouldn't be holding this share. Unless I'm mistaken, it look like new investors are putting in fresh equity to fund ongoing dividends for earlier investors. As I say, it's a bit like a Ponzi scheme.

All the best, Si

Put like that, my learned friend would seem to be correct. Is there a council for the defence?

Arb.

I don't believe the six months reported are typical but certainly the dividend was not covered in that period without the capital raising. You'd need to look at the cashflow cover for the dividend over a much longer time period to get the real picture. I have no interest so really can't be bothered to run the numbers but anyone who is invested should definitely convince themselves that the dividend is in general being covered without the constant issuing of new shares. My biggest complaint about this company is nothing to do with dividend cover, however, I just really don't like the way they value the assets using discounted cashflow methods.

All the best, Si

[Dod101]

viewtopic.php?t=25449#p343901

The above link covers most of the ground I think and will mean that we do not have to put all the arguments again. It is almost a year ago now.

Dod

[bluntnib1]

This is the key paragraph from today's official RNS :

"The Company will use the funds raised to repay amounts drawn under its
revolving credit facility (the "Revolving Credit Facility") and to meet
near-term funding requirements."

So they are not using the money to grow the business they are raising cash to pay down debt and pay divis and admin expenses.

Given the divi is barely covered they are in effect robbing Peter (ie investors) to er, pay Peter.

It also seems to be they are trying to cash in on the publicity prior to the climate summit.

I'm steering clear.

[idpickering]

Acquisition of four solar PV sites in Spain

The Board of TRIG is pleased to announce that the Company has exchanged contracts to acquire a 100% interest in four solar PV sites in the province of Cadiz, Spain, with a total capacity of 234MW (collectively the "Projects"). Completion of the acquisition is subject to certain conditions being satisfied. The transaction is expected to complete in respect of three projects that are ready-to-build in Q3 2021. The fourth project is expected to complete in Q1 2022 once development activities are finalised and it is ready-to-build.

This solar investment in Spain adds to TRIG's technological and geographical diversification, including diversification of power markets and weather systems. These projects do not rely on government subsidy and the Investment Manager will consider a range of power price hedging strategies to manage their exposure to changes in merchant power prices.

The Projects have been developed and are being built by Statkraft (a major Norwegian state-owned utility). The Projects are expected to complete construction in Q4 2022. Through contractual measures put in place, TRIG will not bear any construction risk as part of this transaction - notably due to a right to put any of the four projects back to Statkraft in the event that a project is not successfully commissioned by its respective long stop date.

Whilst this is a first investment in Iberia for TRIG, InfraRed has significant experience in the region and is currently managing an investment in a c. 600MW solar development platform in Spain.

https://www.investegate.co.uk/renew-inf ... 00067564K/

[MDW1954]

My biggest complaint about this company is nothing to do with dividend cover, however, I just really don't like the way they value the assets using discounted cashflow methods.

All the best, Si

How would you prefer that they value assets? Isn't discounted cashflow the only rational way to do it? And the same method that every other REIT and infrastructure trust uses?

MDW1954

[simoan]

My biggest complaint about this company is nothing to do with dividend cover, however, I just really don't like the way they value the assets using discounted cashflow methods.

All the best, Si

How would you prefer that they value assets? Isn't discounted cashflow the only rational way to do it? And the same method that every other REIT and infrastructure trust uses?

MDW1954

I don't invest in infrastructure funds but I would expect most REITs use independent property valuers to arrive at the asset value based on current property market valuations. I would rather any company I own has assets that don't rely on some prediction of the future based on the kind of assumptions used in a typical DCF model, that's all. When that prediction of the future is also carried out by the fund manager, rather than an independent valuation, then I double dislike it.

All the best, Si

[MDW1954]

I don't invest in infrastructure funds but I would expect most REITs use independent property valuers to arrive at the asset value based on current property market valuations. I would rather any company I own has assets that don't rely on some prediction of the future based on the kind of assumptions used in a typical DCF model, that's all. When that prediction of the future is also carried out by the fund manager, rather than an independent valuation, then I double dislike it.

All the best, Si

With REITs, I think you'll find that what is largely going on is that the NAV reflects the value of the future income streams. Hence the discounted cash flows. Ditto infrastructure. REITs can also apply a "fudge factor" of the sort you describe -- the sort of valuation provided by estate agents, in other words -- but with infrastructure, that's very difficult. How do you apply that sort of value to a wind farm out at sea, for instance?

MDW1954

[Dod101]

This point has probably already been covered but as we know infrastructure assets have very limited lifespans and using the DCF method would need to be modified for that. Or is that why the use the DCF method in the first place? I am probably totally muddled on this.

Dod

[simoan]

I don't invest in infrastructure funds but I would expect most REITs use independent property valuers to arrive at the asset value based on current property market valuations. I would rather any company I own has assets that don't rely on some prediction of the future based on the kind of assumptions used in a typical DCF model, that's all. When that prediction of the future is also carried out by the fund manager, rather than an independent valuation, then I double dislike it.

All the best, Si

With REITs, I think you'll find that what is largely going on is that the NAV reflects the value of the future income streams. Hence the discounted cash flows. Ditto infrastructure. REITs can also apply a "fudge factor" of the sort you describe -- the sort of valuation provided by estate agents, in other words -- but with infrastructure, that's very difficult. How do you apply that sort of value to a wind farm out at sea, for instance?

MDW1954

I don’t know. Not an issue I need to deal with since I have absolutely no interest in infrastructure investments. I wouldn’t invest in any company whose asset value is based on a DCF model.

[MDW1954]

I don't invest in infrastructure funds but I would expect most REITs use independent property valuers to arrive at the asset value based on current property market valuations. I would rather any company I own has assets that don't rely on some prediction of the future based on the kind of assumptions used in a typical DCF model, that's all. When that prediction of the future is also carried out by the fund manager, rather than an independent valuation, then I double dislike it.

All the best, Si

With REITs, I think you'll find that what is largely going on is that the NAV reflects the value of the future income streams. Hence the discounted cash flows. Ditto infrastructure. REITs can also apply a "fudge factor" of the sort you describe -- the sort of valuation provided by estate agents, in other words -- but with infrastructure, that's very difficult. How do you apply that sort of value to a wind farm out at sea, for instance?

MDW1954

I don’t know. Not an issue I need to deal with since I have absolutely no interest in infrastructure investments. I wouldn’t invest in any company whose asset value is based on a DCF model.

But what about REITs? In which REITs do you invest?

MDW1954