Potential to generate a 50%+ return from renewable resources.

Click to read more about TRIG

Click to download Interim Results Presentation

While we have had results and an update from Greene King (GNK) and Cineworld (CINE) today which I have written up in the past and these seem fine so click the names above to read the announcements if you are interested in them. The only thing I would note on Cineworld is that they are assuming second half releases will help them make up for the reduced admissions on the back of the World Cup. So today in the spirit of Monty Python, I thought i would bring you something completely different. Though thinking about that now I have written it, if I was being like Monty Python I would just be rehashing what I had written on those two previously! So as the sun has been shining recently I thought I'd highlight today how to invest in "green" energy without putting solar panels on your roof or a windmill in your garden. 

Firstly a more diversified play in the shape of a fund called The Renewables Infrastructure Group (TRIG) which listed in London last year at 100 pence. Now it is never likely to set the world on fire in terms of its capital performance, trading around 106 pence today, as this one is really all about the circa 6% index linked yield it offers. They describe themselves as an investment company seeking to produce long term stable dividends by investing in a portfolio of predominantly operational assets which generate electricity from renewable sources, with a particular focus on onshore wind farms and solar PV parks. You can click the image above to learn more about it and explore it further.

They have just completed a C share issue which has been converted and they are on track to deliver their 6 pence dividend which they say they will aim to increase in line with inflation in the medium term. They also say the Company will target an IRR in the region of 8 to 9 per cent (net of expenses and fees) on the Issue Price of its Ordinary Shares to be achieved over the longer term via active management of the investment portfolio and reinvestment of excess cash flow. Thus as I say not the most exciting investment in the world but I have seen a double digit return since the launch. In my opinion is compares quite favourably to sticking your ISA allowance into cash where you are likely to get a low rate which means you may well lose money in real terms. I note reports that banks have even cut their rates in response to NISA's!

Meanwhile if that is too dull for you I have a potentially more interesting suggestion for you in the area - but mainly focussed mostly on building and operating wind farms - it is a stock called Renewable Energy Generation which has the great EPIC code of WIND. They describe themselves as follows: "Renewable Energy Generation Ltd (REG) develops, owns and operates renewable energy projects in the UK. The company operates through two main subsidiaries. REG Windpower is responsible for our expanding portfolio of onshore wind farms.REG Bio-Power, through its subsidiaries Living Fuels and Living Power, focuses on generating clean power from recycled used cooking oil. You can read more about it by clicking the highlighted links above.

This one is less of a yield play and more of an asset play. I got into this one below 50 pence back in 2012 as it was on a big discount to book value and had a yield of 4%. Since then it re-rated to 80 pence and I was tempted to take profits but held on as I felt there was more upside. Since then it has drifted back and therefore may be worth checking out now as they state on their website about themselves that they have Wind generating capacity of 67.15 mega watts. Meanwhile they have an additional five projects with planning permission awaiting construction with a potential capacity of more than 30 mega watts and a development pipeline in excess of 1,000 mega watts. 

So where's the value in that - well if you look at their recent announcements you will see they have been selling operating wind farms to Black Rock for Enterprise valuations of around 1 to 2 times the mega watt capacity plus retaining management under a long-term asset management agreement. Thus with a market cap and enterprise value of £67 million it would seem to me that this is underpinned by the likely value of the operating wind assets alone and these could be worth up to twice the market cap, if the pricing of a deal flagged in the interims in February was replicated, although the most recent deal was just over 1x the mega watt capacity so some caution is required there. These comparisons are also made more difficult because they are disposing of assets and building out new ones all the time. Nevertheless then factor in 18.5 mega watts apparently under construction and the 30 mega watts that they have planning for could get you to around £100 million as a minimum valuation which represents a 50% upside to the current share price, although no guarantees of course. However, this is before you factor in any value for the Bio-Power operations and the potential value of the planning and development pipeline of 1,000 mega watts detailed above, although I note they capitalise some of the costs associated with these on the balance sheet. Thus it is a slightly complex, smaller and more risky one but I'm happy to run with it as a way of playing this area with a more modest yield (3%+ compared to TRIG), but hopefully with more capital potential in this case once they build out some more of their pipeline. You can also get a copy of their interim results presentation by clicking the image above.

So there you go a couple of ways to invest in renewable energy if you want to, but other options are available. I'm off now to enjoy the weather and I'll have more on sunshine for you tomorrow.

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