SDCL
Energy Efficiency Income (SEIT)
12/07/2024
Results analysis from Kepler Trust
Intelligence
SDCL Energy Efficiency
Income's (SEIT) annual results to 31/03/2024 show a NAV total
return of -4.7%. SEIT paid total dividends of 6.24p (2023: 6.0p)
and the NAV decreased to 90.5p (2023:101.5p). At the current share
price, SEIT yields c. 9.4%. Dividends were covered 1.1x by cash and
based on current projections the board announced dividend guidance
for the year ending 31/03/25 of 6.32p and reaffirmed the goal of a
progressive dividend thereafter.
The main driver of the NAV
decline was a 90bp increase in the weighted average discount rate
(WADR) to 9.4%, with this increase taken in the first half of the
year to 30/09/2024. Of the 11.7p decrease in NAV per share, 10.8p
was due to movements in discount rates.
Post-year end, UU Solar was
sold for c. £90m, a 4.5% premium to its valuation at 30/09/2023,
which, along with external valuations of some assets, helps to
provide 'proof' of c. one third of the portfolio, the valuation
policy and hence the NAV. The proceeds were used to reduce
short-term debt.
The SEIT team notes that the
underlying portfolio return, if it was left to run off to maturity,
would be c. 9.4% p.a. if current gearing just ran off on schedule
and 11% levered if gearing was maintained at current levels.
Factoring in the discount, the share price return could, if the
price converged with NAV, and taking off ongoing charges of c.
1.1%, could result in returns of 13-14% p.a.. Clearly this relies
on all investments performing as forecasted, but is a good
indication of what the discount could actually mean for
returns.
SEIT sold one of its largest
assets post-year end for a premium to its last valuation, which is
the kind of proof of valuation that investors across SEIT's peer
group have been asking to see for the last two years. This,
combined with the point we are in the rate cycle referred to above,
means that pieces are beginning to fall into place for first, a
stabilisation in asset value and second an improvement in SEIT's c.
26% discount, which means that its covered dividend is equivalent
to a c. 9.4% yield measured at the share price. As the chair notes,
the underlying trends behind SEIT are only getting stronger, and
this discount and yield seem like a very good point for a long-term
investor to initiate a position.
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