The Downing Renewables & Infrastructure Trust plc (DORE) [LON:DORE] published its half year report today (18th September).
DORE is a closed-ended, sterling-denominated investment trust established in October 2020, with a market capitalization of around GBP150m, domiciled in the UK and managed by Downing LLP, a London-based investment manager founded in 1986 with around GBP2bn assets under management.
The trust aims to achieve stable and sustainable returns by investing in a diversified portfolio of renewable energy and other infrastructure assets and is overseen by a Downing team led by Tom Williams, a partner in the Energy & Infrastructure Team. Williams has been with Downing since July 2018, having previously worked in private equity and private debt in the infrastructure space.
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The fund runs a diverse portfolio, splitting its assets across various regions, investing in a range of renewable technologies, including hydroelectric, wind and solar electricity generation assets and has a generation capacity of 414 GWh (as at end-June). In total, DORE manages in excess of 4,800 installations in the UK and Sweden.
Distribution and transmission
The fund also signed agreements to purchase two non-generational assets: a Swedish distribution network which serves 1,500 domestic and business customers and an English 200 MVAr shunt reactor. All of DORE’s assets are completed and the fund does not have any exposure to installations under construction.
In terms of assets, at the end of June the fund has 47% of its portfolio in solar energy, 42% in hydro, 9% in wind power and holds 2% in cash. These assets are split between Sweden and the UK, with 51% of assets in Sweden and 47% in Great Britain and Northern Ireland. After June, DORE added transmission and distribution assets to the mix, which became 6% of assets.
In the six months to end of June the fund reported that its net asset value fell 0.6p to 118p. At the same time market capitalisation fell from GBP210m to GBP184m and dividends fell from GBP8m to GBP5m, with dividends per share falling from 5p in December 2002 to 2.69p.
However, gross asset value was up GBP8m and the fund’s asserts saved 97,460 tonnes of CO2 and powered the equivalent of 153,146 UK homes’ typical electricity demands for this period, according to the report.
The company’s chairman, Hugh Little said: “Diversification remains central to our strategy. During the period we signed an agreement to acquire our first grid services asset, Mersey Reactive Power. This acquisition demonstrates the [fund]’s commitment to constructing a diversified portfolio designed to provide greater certainty of future revenues and predictability of income to shareholders by increasing its access to non-generational assets.”
Long-term revenue streams
Little continued: “The [Mersey Reactive Power] project, which has an expected asset life of 40 years, supports the UK’s electricity system in voltage management, providing increased network resilience, reducing costs to consumers and lowering carbon emissions by providing an alternative to fossil fuels. Mersey Reactive Power has an initial fixed priced, inflation-linked, availability-based contract with National Grid ESO until 2031. The acquisition will provide a new, long-term, revenue stream for DORE, one that is not derived from the sale of power on the wholesale markets.”
The fund followed-up the acquisition of Mersey Reactive Power with a GBP7m investment into Bladsjon Nat AB, a Swedish distributor delivering 16GWh to 18GWh of electricity to domestic and commercial customers in Stromsund, a district in northern Sweden.
The company has GBP40m in revolving credit from Santander in the UK, which at the end of June was undrawn but tapped for GBP8.5m after the end of the period to part-fund the acquisition of Bladsjon and will draw GBP11m for Mersey Reactive Power. The fund also has a EUR43.5m (GBP37.4m) facility with Skandinaviska Enskilda Banken, of which EUR27.4m was utilised.
Good Wind Speed
In 1H23 Hall said that electricity generation was ahead of expectations due to “good wind speed”. However, the dry weather had a negative effect on the hydro portfolio, and technical problems with the solar assets also saw the contribution from solar to the portfolio decline.
Profits for the period were GBP3.8m leading to EPS of 2.9p, but because of the issues with DORE’s hydro and solar assets, and lower electricity prices in Sweden, operating profit declined 8%.
The fund paid dividends of 1,25p/share for 4Q22 and targeted 5.38p/share for the year to end-December, up 7.6% year-on-year. The fund paid 1.345p/share in June 2023, and will pay 1.345p/share at the end of this month.
The fund initiated and buyback exercise purchasing 702,500 shares for around GBP700,000 by the end of June. Subsequently another 815,000 shares were bought back for GBP600,000.
Hall is optimistic going forwards. Investing GBP17.7m into three projects and entering the transmission and distribution market was “pleasing” to the board. The company is looking at opportunities in battery storage and is “optimising” its hydroelectric portfolio.
DORE opened trading today 83.7p, jumped to 85.04p within the first hour, before settling back to around 84.4p by lunch. DORE and has offered a year-to-date return of -26.7%, a one-year return of -28.5% with the company’s shares ranging between 83.5p and 119p over a 52-week period.
