Following JLEN Environmental Assets' (LSE:JLEN) positive results, Stifel has upgraded its rating to 'positive', saying it has "greater comfort" on leverage and commitments, with the expectation of some portfolio sales to reduce debt in the months ahead.
With leverage at the fund level of 16% of net asset value, plus project leverage resulting in combined leverage of 40% of NAV, JLEN is one of the lowest levered funds.
"We view the 20% discount to NAV and circa 8% dividend yield as attractive," said analyst Iain Scouller.
As with the whole renewables sector, Scouller said he had been wary of JLEN's leverage position at a time when the funds are unable to issue equity, given the dilutive nature of issuance at a discount to NAV.
The interims showed drawn debt was £125 million on a total facility of £200 million, expiring in May 2025, while JLEN has commitments totalling £42 million to finance in the next year, which if funded from bank debt would leave headroom of £33 million, all else being equal.
In addition, there is £193 million of project level debt, resulting in combined debt totalling 40% of NAV.
"Given the headroom and comments on proposed realisations, we are more comfortable with the prospective debt position."
He added: "Given the improving leverage position and assuming we are at 'peak discount rates', there is scope for the discount to re-rate to closer to the 10% level in the months ahead, in our view."