Interactive Investor

Insider: attractive entry point for investors, and directors

This share yielding 10% trades at a big discount, which the chairperson thinks is ‘unjustified’ and ‘frustrating’. Graeme Evans has the details, plus trading activity at income stock M&G.

24th June 2024 08:16

by Graeme Evans from interactive investor

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Two directors of the 10% yielding NextEnergy Solar Ord (LSE:NESF) have joined retail investors in picking up the FTSE 250-listed shares at a hefty discount to net asset value.

The buyers included chair Helen Mahy, who spent £20,000 backing up her comments in last week’s annual report that shares are at an “attractive entry point for new and existing investors.”

She blamed market conditions for the “unjustified” and “frustrating” discount, which widened to 31.7% at the March year-end despite several operational milestones in the previous 12 months.

These included becoming the first UK-listed solar investment company to achieve installed capacity of 1 gigawatt (GW) and the opening of its first standalone energy storage asset in Fife.

Its UK-focused portfolio of 103 assets generated a total of 5.8 terawatt-hours (TWh) of clean energy, supporting UK and global net zero goals in the process.

Dividends from the past year’s operations increased by 11% to 8.35p a share, including the fourth interim payment of 2.09p due to land in accounts this Friday.

The dividend has boosted the total distributions in the decade since the company’s stock market listing in 2014 to £345 million or 67.8p a share.

For this financial year, the company is targeting a 1% higher dividend of 8.43p a share and covered between 1.1 and 1.3 times by cash.

The current yield of about 11% is one of the highest in the sector and the FTSE 350, fuelling the interest of retail investors after the company emerged as a new entry on interactive investor’s list of most popular investment trusts for May.

NextEnergy Solar has 590 million shares in issue and said that its retail ownership increased by 31 million shares during the last year.

The interest comes after valuations across the renewable energy sector suffered due to a combination of interest rate increases and the economic slowdown, which have driven capital away from investment companies towards the UK gilt market.

Higher rates also increase the cost of debt, which is a key tool for renewable infrastructure trusts to purchase new assets.

The year-end discount of more than 30% has widened despite an 8% decline in net asset value to 104.7p, a weaker result partly attributable to falling power price forecasts.

Efforts by the company to narrow the discount include a £20 million share buyback plan, which it announced the day before last week’s full-year results.

Having traded at an average discount of over 10% across the financial year, the company faces a special resolution for discontinuation at its AGM in August. It will remain in operation unless 75% or more of votes are cast in favour of the resolution.

Mahy, who joined the board last year and is also a non-executive director of SSE, urged shareholders to vote against the resolution. She added: “The company’s portfolio continues to provide resilience by offering a strongly covered and competitive dividend that is underpinned by inflation-linked revenue streams.

“The board and I are confident that the share price of the company will recover over time.”

She bought her shares on Wednesday at a price of 77.5p, the same day as senior independent director Paul Le Page made an investment worth £23,364.

Share purchase at another dividend stock

A popular FTSE 100 stock for income investors saw boardroom support last week when M&G Ordinary Shares (LSE:MNG) chair Edward Braham disclosed investments totalling £80,000.

The shares, which trade with a projected dividend yield of 9.9%, were bought on Wednesday at prices close to 204p. This compares with 240p at the end of March.

A week ago, the savings and investments business revealed it has completed £450 million of deleveraging as part of efforts to improve the efficiency of its balance sheet.

Bank of America said the developments opened the door to dividend increases.

It added last week: “The company has previously stated that reducing its debt leverage was a priority before dividend growth.

“With debt leverage now largely addressed, we think the dividend (and its growth outlook) is increasingly attractive.”

With fixed income set to come back into vogue as central banks cut rates, it added that M&G's asset management operations should benefit from improving net flows.

The bank has a price target of 250p, noting that an increased focus on operational performance can lead to a re-rating. The FTSE 100-listed shares closed last week at 206.3p.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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