Octopus Renewables Infrastructure (ORIT)

02/04/2024

Results analysis from Kepler Trust Intelligence

Octopus Renewables Infrastructure (ORIT) produced a NAV total return of 2.1% for the year ending 31/12/2023 (2022: 12.4%). The trust's NAV fell from 109.4p to 106.0p (-3.1%) largely as a result of  falling power price and inflation forecasts, and an increase in discount rates. Since IPO in December 2019 ORIT has generated a NAV total return of 28.6%.

Share price total return was -4.4%, as ORIT and its peer group continued to experience share price weakness against a backdrop of higher inflation and interest rates. Since IPO, share price total return is 6.7%.

Dividends totaling 5.79p were paid in the year ending 31/12/2023, covered 1.18x   (2022: 1.77x), a 10.5% increase on the previous year and in line with CPI inflation. The 1.18x coverage does not include the positive impact of the gains from asset sales above their holding value (see later), and including this figure the dividend cover would have been 1.52x.

Dividend guidance for the year to 31/12/2024 is for an increased dividend of 6.02p, an increase of 4.0%, again in line with CPI inflation. The dividend is expected to be fully covered.

ORIT sold two assets, both Polish onshore wind farms, for a total of £92m, a 21% premium over the pre-disposal holding value. This generated a c. 3% uplift to NAV and an IRR of c. 30% over the holding period for the investments.

Kepler View

Since the year end, ORIT and its peer group have seen a significant further widening of discounts, as illustrated in the chart below. ORIT now trades at a c. 32% discount to its last published NAV, an 8.4% dividend yield, which is a spread over well over 400bp to UK 10-year gilts. Considering that ORIT has provided considerable evidence about the validity of its NAV in the last financial year, has increased the percentage of fixed contracts to over 80% and has a good pipeline of potentially value-enhancing projects to come through its development investments, this could prove to be a fundamental mispricing of the shares for long-term investors.

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