TIDMUSF
US Solar Fund PLC
26 September 2022
US Solar Fund (USF)
26/09/2022
Results analysis from Kepler Trust Intelligence
USF's unaudited NAV at 30 June 2022 was $0.967 per Ordinary
Share, very marginally higher than the 31 March NAV. A small uplift
in electricity price forecasts, improved operating cost
assumptions, and valuation date roll forward drove the increase in
fair value of the portfolio's underlying solar investments. As at
30/06/2022, the weighted average discount rate range used was 6.7%
(December 2021: 6.3%) on a WACC basis, and 7.6% (December 2021:
7.8%) on a pre-tax cost of equity basis.
The company has continued to deliver and cash cover the target
dividend, with an increase in the dividend of 1.5% in 2022 (USF's
second full year of operations) to 5.58 cents. USF's NAV total
return from inception to 30/06/2022 including dividends paid is
7.8% in dollar terms. In contrast, including dividends paid and
reinvested, the share price total return (in dollars) from
inception to 30/06/2022 is -4.06%, largely due to the discount
widening since listing.
The board recognize the share price performance has been
disappointing compared to peers who have a greater exposure to
merchant power prices than USF. Therefore, the board and the
investment manager are exploring options to deliver value for the
shareholders.
Kepler View
As at 30/06/2022, US Solar Fund (USF's) portfolio consisted of
42 projects across four US states with a combined capacity of
543MWDC. These assets are fully operational, having generated 452
gigawatt-hours (GWh) over the six-month period to 30/06/2022. Power
offtake agreements are in place for 100% of generation with
creditworthy counterparties with a weighted average remaining life
of 14.3 years, providing a resilient and uncorrelated income
stream. This solid income stream underpins the dividend, and is the
chief attraction of USF in our view. The current target dividend of
5.58 cents represents a yield at the current share price (US$ 0.87
as at 26/09/2022) of 6.4%.
USF's shares trade at a discount to NAV of 10%. In our view,
this reflects current market sentiment, which currently favours
those peers with exposure to power prices, and/or inflation
linkage. USF's PPA's do not contain direct inflation linkages
(which are not common in the US), although it is worth noting that
some of the contracts escalate at a specified percentage
annually.
The current discount to NAV could offer value in a sector where
premiums are currently the norm. A catalyst for this discount to
close, could come in the form of the forthcoming announcement on
the board and the managers exploration of "options to continue to
deliver value".
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