Greencoat Renewables PLC (ESM:GRP, LON:GRP) has been rated as ‘outperform’ by Dublin based broker Davy, which has now started its coverage of the Irish windpower group following its successful IPO in July.
The new company, essentially a sister fund to Greencoat Wind UK, concurrently floated in London and Dublin with the funding expanded to €270mln from €250mln due to high investor demand.
Greencoat aims to pay shareholders a 6% dividend and offers the promise of both capital and income growth as it seeks to make further wind investments in Ireland.
The Irish wind farm business presently comprises two operations - Knockacummer and Killhills – with a combined capacity of 138 megawatts. Funds raised in the IPO were used to repay some debt as well as working capital for the group’s potential expansion.
Davy analyst, Joseph McGinley, said in a note that the initial asset base is expected to generate some US$30mln per year, with margins of around 75%.
“With operational assets requiring negligible maintenance, we expect strong coverage for dividend payments post interest and management fees, once the fund reaches its target 40% gearing level, as initially it will be tighter,” the analyst said.
“The fund aims to grow both dividends and NAV, similar to the Greencoat UK Wind experience, through the employment of sensible amounts of leverage and the reinvestment of excess cash to generate returns.”
McGinley also highlighted the favourable conditions – both economic and meteorological - for wind power operation in Ireland where the state’s REFIT scheme effectively sets a floor beneath power sales prices.
“Ireland has set a binding target of 16% of energy to come from renewable sources by 2020 and would face significant fines if it fails to do so. It hopes to achieve this by generating 40% of its electricity from renewables; with little development or support in place for solar projects, the wind industry is set to be the key beneficiary of this policy,” McGinley said.
Meanwhile, the analyst added: “It is clear that wind assets do tend to have large fluctuations from day to day and month to month; however, the annual variation in wind output is actually quite benign in Ireland."
Setting a price target of €1.12 per share, about 5% above the current share price, McGinley noted the low volatility of the group’s income stream.