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Foresight Solar warms to overseas buys

Foresight Solar warms to overseas buys
Foresight Solar Fund (FSFL) is on the lookout for attractively valued solar power assets overseas.

'As the solar industry becomes increasingly competitive, acquiring assets at attractive prices is becoming more challenging,' said Foresight Solar chairman Alexander Ohlsson.

'However, Foresight Solar Fund Limited continues to make asset purchases at attractive valuations and sees significant opportunities in the UK secondary solar market as well as other developed overseas countries with stable currencies.' he added.

During the first half of the year, the fund – co-managed by Jamie Richards and Ricardo Pineiro - acquired two solar farms. They included Shotwick Solar Park in North Wales, which is the largest solar farm in the UK, costing £75.5 million, and Wiltshire-based Sandridge at a price of £57.3 million.

The buys were funded through the fund's revolving credit facility and takes the total number of assets up to 18.

During the second quarter, Foresight Solar's net asset value (NAV) dipped 0.7%, mostly due to the reduction in short to medium-term power price forecasts. The spot price has fallen to £42 per megawatt hour (MWh) at the end of June, from £50 per MWh at the end of 2016.

In its unaudited results covering the six months to 30 June, Foresight Solar reported a 1.7% increase in NAV to £432.8 million. The NAV return for the six-month period was 6.9%. 

During the period, the fund’s assets generated 223.5 GWh, which was 8% below management expectations and was attributed to operational issues.

Bright income prospects

The fund currently yields 5.7% and the board said it is on track to pay its target dividend of 6.32p per share by the end of the year. This demonstrates why this alternative asset class has become so popular with income investors

Numis analyst Charles Cade understands that Foresight is looking in Western Europe, US and Australia for investment opportunities, in line with peers.

The Renewables Infrastructure Group (TRIG) has the most international portfolio, said Cade.

‘It will be interesting to see if investors are willing to bear currency risk in addition to the other variables, which are common place with renewable generation assets,’ the analyst said.

Jefferies analyst Matthew Hose retained his ‘hold’ recommendation on the fund after a series of operational problems.

‘Unfortunately, difficult operational performance continues to dog the fund,’ he said.

‘Early signs are that the new operations and maintenance contractor has improved performance on a number of assets, albeit this is clearly still work in progress.’

Hose noted a number of issues, including transformer failures and a localised fire.

‘Foresight Solar’s large projects should benefit from economies of scale from an operations and maintenance standpoint,’ he said.

‘However, the quid pro quo is that the portfolio is likely to be more exposed to issues like external grid outages, where there is no compensation available.’

Foresight Solar currently trades on a 7% premium to NAV. Over the three years to 16 August, shareholders have enjoyed a 30.8% gain. This compares to a 29.8% return by the average fund in the Association of Investment Companies' renewable energy sector.

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