London, UK, 29 August 2023

SDCL Energy Efficiency Income Trust: Initiation of coverage

SDCL Energy Efficiency Income Trust (SEEIT) is an investment trust focused on delivering energy and energy efficiency as a decentralised service directly to end users rather than supplying into the broader power grid. Its income comes from a range of services and is driven by cutting losses in energy generation, transmission and use. It has delivered a total NAV return of 7.2% pa (3.5p in NAV terms) since IPO in December 2018 and its 6p/share dividend is 1.2x covered, representing an attractive 8.9% yield.

SEEIT presents an attractive potential return to investors, in our view. We see possible further upside to NAV possible from management improvements within its current portfolio (eg efficiency improvements, utilisation of idle capacity and small capital projects), which we believe could provide 12–13% upside to NAV/share over two to three years. Assuming dividends at a CAGR of 3% could add a cumulative 27% to returns over three years, taking three-year returns to 39–40% (or 13–13.3% per year). This is before any potential closure of the discount to NAV, which stands currently at a significant 31.3%, providing an additional potential 45% return if this discount is closed over time (see Exhibit 14 for further detail). If all these factors were realised, this would present a combined potential 85% total return over three years.

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