Jefferies: SEEIT Interim Report

General/ 08 December 2020

NAV: SEIT announced a NAV per share of 102p as at 30/09/20, resulting in a 4.8% NAV total return for the six months. Adjusting for the unwind of the discount rate, FX net of hedging, costs, the ex-dividend, and accretion from October’s share issuance, our estimated NAV becomes 101.6p. The shares currently trade on a 5.8% premium to this.

Assumptions: The portfolio’s weighted average discount rate remained unchanged at 7.5%, with no real mix effects given the limited portfolio activity during the reporting period. There were also minimal macroeconomic assumption changes, with the 7.1% return on the rebased portfolio valuation largely driven by the short extension assumed on the revenue duration of the Primary Energy assets following the new offtake contract, offset by the impact on performance from assets where remedial work to equipment was required. Given a UK RPI assumption of 2.75%, there is likely to be a small impact from RPI/CPI alignment to feed-through at a later stage.

Portfolio: Portfolio performance continues to look resilient. Blast Furnace 4, which was previously idled at the Primary Energy project – remembering that c.25% of revenues are from capacity-based payments – came back on-line in August, while low electricity prices in Spain (Oliva project) were mitigated by the RoRi regulatory mechanism. On the construction side, the Huntsman Energy Centre is now expected to be operational by H1 2021 following COVID-related delays, noting the contractual retention that does not become payable until after completion. Installation at the Tesco rooftop solar sites has also restarted, with seven of the sites now operational. Elsewhere, a useful credit counterparty breakdown was presented, with c.70% of revenues from investment-grade counterparties following the impact of the (non-investment grade) Cleveland Cliffs acquisition of ArcelorMittal’s U.S. assets.

Investment activity: Following the period-end, £107m has been deployed into the Gasnätet gas distribution network, and £2m into the Singapore energy efficiency portfolio. This has helped further increase diversification, as on a pro-forma basis Gasnätet is the largest project in the portfolio at 18% of NAV, outweighing the size of the Primary Energy and Oliva assets.

Balance sheet: The cash balance was £117m at the period end, but following October’s capital raise and the Gasnätet acquisition, the pro-forma cash balance is £112m, equivalent to 21% of NAV.

Dividends: SEIT’s board has reaffirmed its 5.5p dividend target for FY21. The dividend cover of 1.44x looks flattered by the impact of share issuance during the period on an ex dividend basis, and so we would expect full-year cover to be a little lower.