Greencoat UK Wind PLC's (LSE:UKW) investment proposition is "relatively simple and attractive", with its attractions not only in the high dividend yield but also the link to UK inflation, say analysts at Kepler.
The investment trust invest in wind farms at a 9% internal rate of return, employ modest levels of low-cost debt and after paying its inflation-linked dividend reinvests any surplus cash flows to grow its net asset value.
"This is exactly what the board and managers have delivered, now for more than ten years," the analysts said.
Its "robust" balance sheet is further strengthened by the expectation that UKW will have around £200 million of excess cash flows per year to reinvest, pay down debt or, in view of the discount at which the shares currently trade, conduct share buybacks.
UKW’s managers describe the trust as self-funding, without the need to issue equity, which, all things being equal, "should have a positive impact on the discount narrowing".
At the current share price, the prospective dividend yield is 6% and a prospective NAV return of 10% that "looks attractive on a risk-adjusted basis against many other investment opportunities".
The assumptions underpinning the NAV are conservative, the analysts said, with the managers pointing out that the portfolio has proved robust in the face of downside power price sensitivities, whilst offering upside to power prices.