Octopus Renewables Infrastructure (ORIT)
02/04/2024
Results analysis from Kepler Trust
Intelligence
Octopus Renewables
Infrastructure (ORIT) produced a NAV total return of 2.1% for the
year ending 31/12/2023 (2022: 12.4%). The trust's NAV fell from
109.4p to 106.0p (-3.1%) largely as a result of falling power
price and inflation forecasts, and an increase in discount rates.
Since IPO in December 2019 ORIT has generated a NAV total return of
28.6%.
Share price total return was
-4.4%, as ORIT and its peer group continued to experience share
price weakness against a backdrop of higher inflation and interest
rates. Since IPO, share price total return is
6.7%.
Dividends totaling 5.79p were
paid in the year ending 31/12/2023, covered 1.18x
(2022: 1.77x), a 10.5% increase on the previous year and in line
with CPI inflation. The 1.18x coverage does not include the
positive impact of the gains from asset sales above their holding
value (see later), and including this figure the dividend cover
would have been 1.52x.
Dividend guidance for the
year to 31/12/2024 is for an increased dividend of 6.02p, an
increase of 4.0%, again in line with CPI inflation. The dividend is
expected to be fully covered.
ORIT sold two assets, both
Polish onshore wind farms, for a total of £92m, a 21% premium over
the pre-disposal holding value. This generated a c. 3% uplift to
NAV and an IRR of c. 30% over the holding period for the
investments.
Kepler View
Since the year end, ORIT and
its peer group have seen a significant further widening of
discounts, as illustrated in the chart below. ORIT now trades at a
c. 32% discount to its last published NAV, an 8.4% dividend yield,
which is a spread over well over 400bp to UK 10-year gilts.
Considering that ORIT has provided considerable evidence about the
validity of its NAV in the last financial year, has increased the
percentage of fixed contracts to over 80% and has a good pipeline
of potentially value-enhancing projects to come through its
development investments, this could prove to be a fundamental
mispricing of the shares for long-term
investors.
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