CityWire Investment Trust Insider: Energy Efficiency: Triple Point happy to take £100m at launch as SDCL seeks fresh funds

General/ 13 October 2020

By Gavin Lumsden 14 Oct, 2020 at 09:59

A sub-sector in energy efficiency funds has emerged with Triple Point Energy Efficiency Infrastructure Company (TEEC) raising £100m and confirming it will list on the London Stock Exchange on Monday.

The new investment trust will sit alongside SDCL Energy Efficiency Income Trust (SEIT) which raised the same amount in December 2018 when it became the first investment company to specialise in running projects that save companies energy bills and cut their carbon emissions.

Not to be outdone by its new rival, yesterday the now £452m SEIT announced its third share issue since launch. It wants to raise £80m for its pipeline of new investments and is offering with new shares at 105p, a 4% premium to the last reported net asset value on 31 March and a 5.4% discount to their closing price on Monday.

Although Triple Point failed to hit its upper target of £200m it will be relieved to have achieved half that given the current stock market uncertainty and the fact that increasingly trusts below £100m fail to attract wealth managers which are the sector’s biggest buyers.

Like SEIT, TEEC is primarily an income fund, aiming to generate a 5.5% dividend yield on its 100p share price in its first year, as part of an annual total return to shareholders of 7-8%.

The successful flotation of another ‘alternative income’ fund contrasts with the Tellworth UK smaller companies trust which had to postpone its launch this month after failing to attract £100m, extending a trend of recent years which has seen infrastructure, debt and specialist property trusts attract much more money than conventional equity funds.

A total of 100m TEEC shares will start trading in London on Monday after the initial public offer (IPO) organised by RBC Capital Markets, Winterflood Securities and Akur Capital.

Although fund manager Triple Point is best known for its Social Housing (SOHO) real estate investment trust,  currently seeking to raise £70m in a fund raising, it has a ten-year record of investing in energy efficiency where it currently manages over £1.5bn in combined heat and power (CHP) projects, hydroelectricity, solar power and reserve peaking plants, areas where the new trust currently has a list of nearly £300m of eligible investments it could make.

For his part SEIT fund manager Jonathan Maxwell said he had over £100m of investments on which he was in exclusive talks and a further £150m at an advanced stage of due diligence.

Chairman Tony Roper said: ‘This proposed capital raise builds on the strong momentum SEIT has achieved over the last two years. Energy efficiency is critically important in global efforts to address the climate emergency and has become an increasing focus for investors. The proceeds of this placing will allow SEIT to continue to invest in this important and growing market whilst also delivering additional scale and diversification to shareholders.’

Investors who buy shares in the placing will be entitled to receive the next quarterly dividend declared in November. SEIT has a dividend target of 5.5p per share for the financial year to 31 March 2021, which offers a dividend yield of 5.2% at the 105p placing price.

Stifel analyst Max Haycock was surprised at the timing of the equity issue a month before half-year results that would have up-to-date financial information. ‘This is SDCL’s third equity issue in a year and the clear message is don’t buy the shares in the market on a high premium when there could be an equity issue around the corner. The shares traded at 111p yesterday [Monday] and the equity issue is at 105p. This habit of frequent equity issuance may temper the premium going forward.

The shares are half a penny up at 106.5p this morning.