NextEnergy Solar Fund Ltd investment director and UK legal counsel Stephen Rosser talked with Proactive's Stephen Gunnion about the company's steady third-quarter performance and growth prospects underpinned by the UK's Clean Power 2030 plan.
Proactive: Hello, you're watching Proactive. I'm joined by NextEnergy Solar Fund investment director and UK legal counsel, Stephen Rosser. Stephen, very good to speak with you. Could you take us through some of the highlights of your third quarter NAV and operational update, please?
Stephen Rosser: Stephen, great to be here. Overall, it was a steady quarter for the Next Energy Solar Fund. We completed the third phase of the capital recycling program, which we are very pleased with. That was the sale of Staughton at a 21.5% premium to the holding value. So that importantly brings the total capital recycled to date to £72.5 million.
We maintained our disciplined approach to capital allocation, as you would expect, down paying the revolving credit facility by around £19 million and also continuing our share buyback program. Generating conditions over the quarter were less than optimal and principally driven by adverse weather and some associated outages on the electricity networks, which did impact the operating result. However, we still expect to be around 1.1 times cash covered for the full year dividend target of 8.43p. So, as I said, pretty steady quarter for the fund.
Proactive: Stephen, what actions are you taking to narrow the discount?
Stephen Rosser: So we remain focused on our capital recycling program where we're on to phase four. That continues to progress via a competitive process. And we'll be pleased to update on that in due course. We also continue to focus on our share buyback program, and we're making solid progress there. As a proactive manager, we're also focused on positioning NESF to be able to harness the significant opportunities that we see through the Clean Power 2030 plan that the government announced in December, where we see material opportunities to drive growth based on the existing portfolio and the existing proprietary pipeline, but also a wider opportunity set for the fund.
Throughout all of that, we maintain a regular and very active dialogue with the broad spectrum of shareholders to ensure that we understand their perspectives on the drivers of the discount itself and the approach to managing it, so that we make sure we bring the right activities.
Proactive: You touched on the share buyback. Can you talk some more around this, please?
Stephen Rosser: Of course. Yes, our buyback, as I said, continues to make steady progress. With NESF a regular buyer in the market day to day. To date, we've bought back over 12.5 million shares for a total consideration of around £10 million so far against a total buyback target of £20 million announced by the board.
So it's been steady progress there, which keeps us pretty much in line with the peer group and also means that the share price discount to that NAV is around in line with the peer group, actually been slightly favorable to some others.
Proactive: What does the future UK market landscape look like for solar and energy storage, given government changes and CP30?
Stephen Rosser: Overall, it's very positive. Helped a little bit by the recent base rate cuts that we've seen and the prospect of any future rate cutting in future cycles. And a generally supportive government as I mentioned. The Clean Power 2030 plan has been a really important announcement in December, focused on delivering 50GW of installed solar capacity by 2030.
That's a three-fold increase relative to what's currently on the grid today. We see Next Energy Solar Fund as being very well positioned to harness some of the opportunity that presents both in terms of achieving those targets but also to drive value for shareholders.
Proactive: NESF currently offers a dividend yield of around 12-13%. Why should investors look at the fund?
Stephen Rosser: At the core of it is really strong fundamentals, so it's a fantastic value for investors. When you look at the high yield, which we expect to be around 1.1 times cash covered for this full year, as I've mentioned, we also continue to believe that the discount to the net asset value is not justified by anything that's going on in the portfolio; it is driven by some of the macroeconomic factors.
So we do see significant potential for the share price to re-rate, which would drive capital growth when markets correct. As a fund, we pride ourselves on the strong ESG credentials. As a fund in particular, with over 2,700 tonnes of CO2 avoided since inception, which is an enormous achievement.
And then beyond that, the fund is really well positioned now for growth with particular tailwinds, as I mentioned, from the Clean Power 2030 plans, which will require £20-£25 billion of investment over the next five years. So, as I say, we're as a manager really focused on positioning NESF to be able to harness and unlock that to drive volume growth.
Proactive: Stephen, what's next for Next Energy Solar Fund?
Stephen Rosser: Very much what you would expect from us, really. Continuing to focus on providing shareholder value in the form of the cash-covered dividends, continuing to optimize the portfolio that we have; so we drive that fundamental performance in the right way. Then continuing to unlock those accretive growth opportunities, both from our secured proprietary pipeline, development and construction activities, but also third-party opportunities.
That's driven by the Clean Power 2030 plan in particular. So a really exciting trajectory ahead for the fund.