Friday 4 June 2021

Here Comes The Sun (Portfolio Buy)

In the UK, at least, summer has started - taking us all a bit by surprise after months of rain. The sun is an effectively free source of energy that we, as a planet, will need to harness more effectively in order to survive sustainably. 

So, can solar energy be a good investment too?

Foresight Solar Fund Ltd (FSFL), a FTSE 250 company, is one of those Jersey-based funds that always makes me feel wary. Still, it has a track record of delivering a good dividend and an interesting business plan (if you're hoping to save the planet). Essentially it is a capital structure that invests in land-based solar energy projects in the UK, Australia and - more recently - Spain. The company is now investing in downstream battery capacity that will allow it to tap into more lucrative times of the day for the spot price of electricity.

The current dividend yield is nearly 7%, with a dividend cover just over 1 (which is a bit slim for my taste). It also carries a lot of debt - nearly half a billion pounds, although it has paid off some of it according to the latest Annual Report for 2020. Revenue is highly dependent on subsidy - in 2020 62% of worldwide income is from subsidy, mainly from the UK.

Electricity demand in the UK and Australia has been subdued due to Covid but I think we can expect this to gradually increase as the markets concerned return to more normal activity. All the signs are that electricity demand over the coming decades will increase as economies 'electrify' away from fossil fuels. The most interesting part of the picture is that the latest acquisitions in Spain are for unsubsidised solar electricity. 

There are plenty of risks, however - as highlighted by Investors Chronicle.

I am under no illusions: this is a fund out to make money, rather than save the world - but I like the sector. so I'm willing to take a punt.

[Purchase price: £0.9805]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

No comments:

Post a Comment