Numis: SDCL Energy Efficiency Income – £100m acquisition of Swedish gas distribution network

General/ 19 October 2020
  • SDCL Energy Efficiency Income (SEEIT) has agreed to pay £100m to acquire a 100% interest in Värtan Gas Stockholm (VGSAB), the owner of the established, operational and regulated gas distribution network for Stockholm, Sweden. The consideration will be funded from existing cash reserves (including part of the proceeds from the recent £105m capital raise) and debt facilities, which includes a £30m short term acquisition facility that has been added to SEEIT’s current £40m RCF. VGSAB’s existing project debt finance facilities, which are equivalent to c.£26m, will remain in place. The investment represents c.19.5% of net assets following the recent fundraise.
  • The VGSAB group owns and operates Stockholm’s regulated gas grid, the majority of which is sourced from locally produced biogas (c.70%). It supplies and distributes to over 58,000 residential, commercial, industrial, transportation and real estate customers in Stockholm.
  • Investment Case: The manager notes that it is an essential infrastructure service that helps to reduce pollution and greenhouse gas emissions by reducing and reusing waste gases both at the point of production. SEEIT intends to work towards increasing the proportion of green gas in the network to 100% over time. The grid is an essential component of an integrated system, aligned with national and regional strategies to attain carbon neutrality by 2040. Revenues are primarily regulated, and predominantly based on fixed tariffs with relatively low sensitivity to customer demand or consumption. The manager also believes that there are opportunities for revenue growth from serving new transport customers, as commercial and municipal vehicle fleets continue to switch to cleaner fuels, including biogas. In addition, there are opportunities to deliver new energy and infrastructure services to customers by developing the network and through vertical integration.
  • Numis View: The acquisition was flagged as part of a near term pipeline in the recent capital raise which saw SEEIT issue 100m shares at 105p, raising gross proceeds of £105m, up-scaled from the targeted amount of £80m. Management notes that the investment is expected to meet and exceed SEEIT’s total returns targets (7-8%) and to further support its progressive dividend policy. SEEIT is currently targeting a dividend of 5.5p (5.2% yield) for the year ending 31 March 2021.