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Foresight Solar Fund offers a 6% index-linked yield and access to significant growth opportunities in renewables

Demand for solar power looks set to rise in the coming years

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Foresight now has a total generating capacity of 869MW

It seems clear from just a glance at the modern news agenda that renewable energy is going to play an increasing role in meeting the needs of future generations.

In the UK wind power has taken off in a big way in recent years, but there’s also room for solar power, whatever the sceptics about the weather may say.

In fact, UK weather patterns over the course of a year are very predictable, especially if you use historical data tracking back for twenty-five years or so.

That’s what Foresight Solar Fund Ltd (LON:FSFL) does every time it contemplates making a new acquisition, and indeed, some of the opportunities that do present themselves are not up to standard.

But nevertheless, the fund has been able to grow significantly since it was established in 2013 through the judicial acquisition of larger-scale opportunities, and its manager Ricardo Piñeiro, is confident that due diligence on the weather is second to none.

“We are theoretically vulnerable to weather,” he concedes.

“But actually solar is the most predictable of renewables. When we acquire a project we look at the historical averages. Over a 25 year period the average standard deviation is 4% in individual years. And overall, the 12 month averages are quite stable.”

In total Foresight Solar Fund now has 54 assets, accounting for a total generation capacity of 869 megawatts (MW).

The strategy is fairly straightforward. The fund is interested in acquiring larger scale ground-mounted solar assets that are either already operational or which are in development.

Last year was a particularly busy one, as 31 new assets were acquired, for a total of 248MW.

The fund in total is now worth around £675mln, well up on the £150mln that was raised at IPO back in 2013. The shares have risen by around 25% in the past five years, and what’s more, trade at a premium to net assets.

That’s because although capital growth is obviously important, for most investors the real story is about yield. And it’s also one of the main criteria the fund uses to screen potential new acquisitions.

“We try to deliver predictable and stable dividends,” says Piñeiro.

“We target at 6% inflation-linked dividend, and we have been delivering on our target dividend.”

That sort of yield isn’t always so easy to come by in today’s world of rock-bottom interest rates, and although utilities are known for offering good returns, the attractions of Foresight in recent weeks, as climate change protestors have brought parts of London to a standstill, are clear enough.

Investors have bid the shares up by more than 10% since the beginning of the year, with a particularly steep jump coming in April.

The foundation for that move though, came in the results for the year to December 2018, issued at the beginning of March.

These showed that year-on-year net assets had increased from £481mln to £610mln, and that net assets per share had risen from 107p to 111.2p. During 2018 the portfolio performed above expectations and accounted for more than 5% of all solar power generated in the UK. The dividend for 2019 was set at 6.76p.

As it stands, most of Foresight’s assets benefit from the government’s subsidy regime, which accounts for a significant chunk of revenue. But the technology behind solar panels has been getting more sophisticated, and Piñeiro is upbeat that the next stage in the fund’s growth will involve much more emphasis on subsidy-free assets.

The fund has already made a move into Australia, and the next major geographical area of focus is likely to be southern Europe.

“What we do is deliver clean energy,” says Piñeiro.

Given that the narrative in the mainstream media seems to be that we need even more green energy, and fast, it seems likely that Foresight’s growth trajectory will continue.

Cautious investors can be reassured by the historic yield, while the more adventurous can look to the future

 

 

 

 

Quick facts: Foresight Solar Fund

Price: 109 GBX

LSE:FSFL
Market: LSE
Market Cap: £660.29 m
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