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Investing.com -- Shares of Greencoat UK Wind PLC (LSE:UKW) fell by 2.2% following the announcement of a decrease in its net asset value (NAV) for the fourth quarter. The company reported a 4.7% decline in NAV to 151.2p per share as of December 31, compared to 158.6p per share at the end of the third quarter.
The key factors contributing to the NAV reduction included an update to energy yields, which decreased by 6.5p per share, dividends paid out at 2.5p per share, and lower than expected retail price index (RPI) inflation impacting the NAV by 1.4p per share. These were slightly offset by net cash generation adding 2.6p per share and a positive mark-to-market movement of debt contributing 1.2p per share.
A significant review of energy yields was performed with a third-party expert, leading to a harmonization of asset assumptions across the portfolio. Due to wind speeds in recent years falling below budget, the long-term generation forecast was reduced by approximately 2.4%. Despite this, the dividend cover for 2024 was reported at 1.3 times, which is below the long-term expectations for the portfolio, mainly due to the lower wind speeds, alongside some impact from asset availability and power prices.
Looking ahead, Greencoat UK Wind expects the dividend cover to be approximately 1.9 times, suggesting expected excess cash generation (post-dividend) of around £200 million a year or about £1 billion over the next five years. This forecast is in spite of the reduced P50 estimates, which are a measure of the expected median energy production.
Additionally, the company completed a £41 million disposal at NAV, selling 40% interests in two wind farms, which was used to repay the company’s revolving credit facility (RCF) and fund further share buybacks. The sale was made to a high-quality partner, and the company indicated the potential for further similar opportunities to optimize the balance sheet.
Gearing was reported at 39.7%, just under the 40% limit, but the company appears to be in a strong position to reduce debt, given the forecasted excess cash generation and the opportunity for further asset disposals.
RBC commented on the company’s share buyback program, stating, "We expect an update on the buyback at year-end results, given £90m of the current £100m buyback is now complete."
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