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Edison Investment Research Limited
London, UK, 30 October 2023
Edison issues update on Foresight Solar Fund (FSFL): Generating solar power and cash Foresight Solar Fund (FSFL) presents investors with an attractive dividend yield (8.6%), a 10-year track record of dividend growth (25% since IPO), strong cash dividend coverage (1.5x until at least 2025) and underlying revenue security (contracted revenue accounts for 90% of total revenue in 2023, 85% in 2024 and 75% in 2025). These appealing metrics are even more surprising given the fund operates in a structural growth industry. As FSFL reaches its 10-year anniversary, the competitiveness and opportunities in solar continue to grow. Like many of its peers, in a rising rate environment, it trades at a discount to NAV (26%), which we see as an attractive opportunity. FSFL’s yield is attractive given management’s confidence of a minimum dividend cover of 1.5x until at least 2025. FSFL continues to forward-fix its price exposure in the short and medium term, through contracted revenues and power purchase agreements (PPAs), providing greater revenue certainty. FSFL can fix power prices in six-month blocks, up to five years ahead via hedging. In addition, we argue that the market does not appreciate the value of FSFL’s potential pipeline and its ability to recycle capital from its current portfolio into higher return new opportunities. Investors have been attracted towards fixed income and money market products in a rising interest rate environment, although these present negative real investment returns. FSFL offers positive real yields, well covered by cash generation, and an ultimate end use with a strong structural growth story with a proportion of revenues linked to inflation that help support a growing dividend. FSFL is also trading at a 26% discount to NAV, offering an attractive entry point to investors.
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1760489 30-Oct-2023
