TIDMFSF
Foresight Sustain. Forestry Co PLC
20 December 2022
Foresight Sustainable Forestry (FSF)
20/12/2022
Results analysis from Kepler Trust Intelligence
Foresight Sustainable Forestry (FSF) has reported its results
for the period ending 30/09/2022. In a tough year for markets,
FSF's positive performance stands out. From its initial public
offering (IPO) on 24/11/2022 until the period end, the trust saw a
total NAV return of 5.0% and a share price total return of
8.2%.
The trust raised GBP130m at IPO and a further GBP45m from equity
issuance in June. The managers deployed capital ahead of schedule
and had fully invested the IPO proceeds by the time of June's
equity issuance. They also achieved their target of having at least
40% of the portfolio invested in afforestation sites by August.
These are plots of land which can be turned into new forest and
woodland, as opposed to existing forests.
FSF Chairman Richard Davidson said: "FSF is well placed to
benefit from a future increase in timber and voluntary carbon
credit prices and remains focused on a significant amount of new
forestry planting. We will continue to deploy our capital
advantageously."
Kepler View
Foresight Sustainable Forestry (FSF) is the only investment
company listed in the UK to focus solely on forestry and is the
first fund to be accredited with the London Stock Exchange's
Voluntary Carbon Market (VCM) designation. The managers invest in
existing forestry sites, afforestation sites, and other sites that
are a mixture of the two. The trust's investments should
theoretically not be correlated with equity or bond markets and
have generated positive returns this year. Returns for the trust
have three main drivers - revaluations to land, sales of timber and
the creation of voluntary carbon credits.
The first of these is likely to be the primary driver of the
trust's total returns, particularly in afforestation sites. Indeed,
one of the main arguments the managers had made prior to IPO was
that repurposing land for forestry was likely to substantially
increase its value. This has been illustrated by the period under
review. In cash terms, the increase in NAV totalled GBP11.5m. Of
that amount, GBP7.5m was due to revaluations of afforestation
sites.
Several tailwinds are currently working in the UK timber
market's favour as well. The UK typically imports approximately 80%
of its timber but a devalued pound has made domestic timber more
attractive to UK buyers. Growing demand for sustainable timber, as
well as the desire to 'onshore' supply chains, is also likely to
make the timber FSF's sites produce more appealing to buyers. At
the same time, Russia, Ukraine and Belarus are now effectively off
limits due to sanctions imposed following the former's invasion of
Ukraine. According to Investment Monitor, those three countries
accounted for 25% of global timber trade prior to the war, a figure
which is certain to drop in 2022.
Another key objective of FSF is to generate voluntary carbon
credits and the trust became the first investment company to
receive the London Stock Exchange's VCM designation in December.
Carbon credits are generated by projects that help reduce carbon or
equivalent greenhouse gas emissions, either by removing them from
the atmosphere or preventing their emission in the first place.
FSF's capital is on track to produce 1 million carbon credits in
its current investment cycle. Credits that FSF produces can be paid
out as dividends to shareholders (i.e. share of credits delivered
in place of their cash value) or sold with any related dividend
paid in cash.
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