Disclosure – Independent Investment Research. This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.


renewable energyA diversified portfolio of large scale solar energy parks in the UK, with the objective of delivering a long term stable yield…


Bluefield Solar Income Fund (BSIF) has a market cap of £430m and is, in our view, amongst the simpler to understand solar funds.

It owns a portfolio of solar PV assets only, and all in the UK, which offer long term cashflows, of which 66% of revenues are linked to inflation.

Bluefield Solar Income Fund’s main differentiator is that it is not attempting to re-invest cashflows, and so shareholders will receive all net income as dividends.

The board do hold back some income for smoothing purposes, or repaying debt earlier. However, over the long run, and in the absence of lease extensions, the NAV will start to decline earlier than with the other renewables funds.

In the absence of subsidies, and until equipment prices drop further, at today’s electricity prices there is almost no new investment in solar PV in the UK.

As a result, the managers have commented that the UK remains fiercely competitive for acquirers of solar assets, and that they expect that the company’s growth will slow as Bluefield Solar Income Fund perceives that paying the current level of pricing for secondary assets would dilute returns to shareholders.

Until the market for such assets changes, it does not expect to issue a significant number of shares in the future.

The board aims to grow dividends in line with RPI using the 2014/15 financial year dividend of 7p per share as a base. Each year the board sets a target based on the RPI uplift from the previous target, and so far the company has exceeded this target each year.

At the same time the board looks to build up reserves of carried forward revenue so that if needed, it can smooth the dividend. At the time of the interims on 31 Dec 2017, these stood at 0.73pps.

The board has guided that the current year’s target is 7.43p per share for the financial year ending 30 June 2018, equivalent to a yield of 6.1% on the current price.

In terms of revenue, the company is exposed to electricity prices, but also to subsidies in the rough ratio of 40:60. The 60% of revenues from subsidies are relatively fixed, and are linked to inflation.

In relation to the electricity exposure, Bluefield Solar Income Fund agrees one- to three-year power contracts for the majority of the portfolio. This means that over the short term the managers have reasonable certainty over 87% of power prices for the period to June 2018, and 73% for the period to December 2018.

This gives reassurance according to the managers that any short-term changes to power prices will not affect the ability of the company to pay dividends very significantly.

The company has enjoyed robust demand for its shares, and according to data from Morningstar has traded on an average premium to NAV since launch of 5.6%. At the current premium of 7%, the shares trade at a very modest premium to the sector average.
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