Greencoat UK Wind remains a ‘key buy’ for analysts at Liberum, even though 2022 was an exceptional year for the power generator said the broker.
High merchant power exposure allowed Greencoat to benefit most from last year's higher electricity market prices, said Liberum, with approximately half of the year’s 25% NAV growth (to 167.1p) due to excess cash generation.
The remainder came from upgrades to assumptions of future cash flows.
Liberum notes the increase in NAV included a reduction of 8p due to the Electricity Generator Levy or windfall tax.
Cash generation increased by 118% to £560mln, with the dividend raised by 13.4% to 8.76p.
Power prices have softened this year so far, but future projections are for prices to remain high in future winters while wholesale is still attractive relative to pre-Covid, Liberum said.
As such, UKW remains a key buy, added the broker, which has a 170p price target noting the shares now trade at a discount to NAV compared to its traditional 10% premium.
“This is excessively cheap given the current portfolio's positioning with a higher prudent discount rate, an RPI-linked dividend with the highest cover in the sector and an SPV cash yield of.9%, which admittedly is unlikely to be sustained.”
Shares today were down 1% at 157.4p.