NextEnergy Solar Fund Ltd (LSE:NESF)'s investment director and UK legal counsel Stephen Rosser earlier this week discussed its interim results and ongoing initiatives. The company reported £45 million in cash generation from approximately 600 gigawatt hours of clean energy production. It maintained its 8.43p dividend target for the full year, with a coverage of 1.1 times.
The company highlighted its focus on narrowing the discount to net asset value through a capital recycling programme. It recently completed the sale of Staughton, a 50 MW operational solar asset, for £30.3 million—a 21.5% premium to its carrying value. Other completed transactions include the sale of Whitecross and Hatherden, with the latter generating a premium through project optimisation.
Proactive: Stephen, very good to speak with you today. Could you take us through some of the highlights of your interim results?
Rosser: It's been a period of solid progress for NextEnergy Solar Fund. Over the period, we generated across the portfolio around £45 million worth of cash from almost 600-gigawatt hours of clean electricity production.
We've maintained our target dividend for the full year of 8.43 pence and expect to be around 1.1 times cash covered, despite some slightly less-than-optimal generating conditions over the period, driven by a combination of the weather and some outages on the electricity networks in particular.
Our dividend yield is around 11%, one of, if not the highest, in the FTSE 250, which makes the vehicle a very attractive entry point for investors.
Proactive: What actions are you taking to narrow the discount, Stephen?
Rosser: We're a very active manager. As we've communicated previously, we embarked on a program to recycle capital from some of the more mature investments in our post-subsidy solar portfolio.
We had completed two of these phases previously, and we're very pleased to announce the completion of the third phase. That's a really important component of our activity to manage the discount.
We've also initiated a meaningful share buyback program of up to £20 million. We're making good progress in executing that.
And then we remain in active dialogue with all our shareholders and investors to understand sentiment and how we can continue to evolve the portfolio so we manage that discount and drive back towards a premium.
Proactive: You mentioned the share buyback programme, Stephen. How's that going?
Rosser: Making steady progress in line with the targets we set ourselves. To date, we've bought back over 8.6 million shares for a total consideration of about £6.8 million. It's in line with peers and taps into liquidity where we see that in the market.
Proactive: Could you run us through the capital recycling program and your latest asset sale that you mentioned?
Rosser: As we announced last year, we have a very structured capital recycling programme to unlock value from the fund's investments, particularly in post-subsidy solar.
The most recent transaction, which we announced this morning, is the completion of phase three—the sale of Staughton. That's a 50 MW operational asset, for which we received £30.3 million. That’s a 21.5% premium to the carrying value.
This builds on the successes of phase two, which included the sale of Whitecross in June this year and the sale of Hatherden, a ready-to-build development project, at the end of last year.
Proactive: How do you achieve the premiums on these assets?
Rosser: The key is that we are a solar specialist. We understand where the value drivers are and can unlock different components of value for projects at various phases of their lifecycle.
For example, with Hatherden, which was a development project, we had the flexibility to optimise its configuration. We originally conceived it as a 50 MW project but redesigned and sold it as a 60 MW project with rights to install a battery. We also secured a contract for difference as a revenue stabilization mechanism, which drove a very attractive premium.
With Whitecross, the key drivers were ensuring a clean build and securing a contract for difference, making it an appealing asset for buyers. For Staughton, which has been operational longer, the key was understanding the market and aligning with buyers’ priorities, which allowed us to achieve a 21.5% premium.
Proactive: What does the future market landscape look like for solar and energy storage, given the government change?
Rosser: I think it’s very positive. We’ve seen momentum from the government and clear commitments to achieving clean power by 2030. We’re excited about the roadmap that the solar taskforce is set to publish and other engagements with the government about achieving net zero.
Additionally, base rate cuts this year provide optimism for the sector. We are starting to see capital returning to infrastructure and renewables after a hiatus, which is promising. Within NESF, we have a proprietary pipeline of projects with flexibility for deployment when the time is right.
Proactive: You mentioned the 11% dividend yield that NESF currently offers. Why should investors look at NESF?
Rosser: It’s fantastic value for investors. The high yield and the unjustified discount in the share price to net asset value make it an attractive opportunity. The portfolio is performing in line with expectations and is positively generating cash, covering the dividend comfortably. It’s a solid foundation that makes it a great entry point.
Proactive: So what's next for NESF then?
Rosser: We’ll maintain focus- continued discipline in our capital structure and allocation. We’re working on completing the next phase of the capital recycling program and maintaining our cash-covered dividends and progressive dividend policy.
The target dividend for this year is 8.43 pence, and we expect it to be 1.1 times cash covered, despite earlier challenges. We’ll keep updating the market as we progress.