The JSE’s second of three new listings this year might be the most interesting to any investor looking for a hard currency dividend, and an entry into Europe’s massive renewables market, where countries are set to plough €1.5-trillion into green power generation over the next five years.
Greencoat Renewables Plc made its entry onto the JSE’s Alt-X earlier this month. As a secondary inward listing it’s raised no capital from local investors yet, but that will change down the line as it looks to tap South African wealth and asset managers.
“We quickly realised what we were bringing to South Africa just doesn’t exist at the moment: a renewable infrastructure company paying stable dividends with a long track record,” says Greencoat’s European portfolio manager, Paul O’Donnell.
“When we listed in Ireland in 2017 we realised that kind of opportunity resonates well with asset managers, and there’s a lot of money and a lot of investors in South Africa interested in those two themes,” he argues.
The company’s focus is Europe and will remain so for the foreseeable future. “We’re at an interesting point, with less of a commitment from some global countries [towards decarbonisation], but Europe is not softening its position in terms of what it wants to do. [It’s] very committed, so what’s very clear is it’s going to need a huge amount of capital,” O’Donnell tells Currency.
Greencoat is invested in mostly Irish and European windfarms, with a smattering of solar and battery assets, and has grown its portfolio since listing from 137MW to 1.5GW worth of assets. It essentially buys into power projects that are either operational or in construction. “We don’t develop them ourselves; we buy them when they’ve been de-risked,” says O’Donnell.
That strategy means the company generates cash – which it uses to pay investors a regular dividend, and plough into more projects.
‘A stepping stone’
Yet despite all the money being flung into decarbonisation, Greencoat’s share price over the past five years isn’t really indicative of a stampede into a stock that plays on this theme. The share has steadily dropped from €1.19 in 2020 to about 76c a share now – a decline of about 36%.
Asked about this, O’Donnell says it’s one of the “challenges” of “short-term capital”.
“We historically traded at a healthy premium to NAV [net asset value] but particularly in the UK, as interest rates spiked, there was a lot of capital that came out of the market from multi-asset funds that went back into cash and bonds.”
It didn’t help that Europe has just experienced 12 months of very low wind speed, which meant Greencoat’s plants generated less power than budgeted for; one of the reasons the company delivered a drop in both earnings and revenue for the 2024 financial year.
Still, the way Greencoat sees itself is as a play on its NAV. “The total return we think about giving to investors is always a 6% dividend and then to reinvest 1%-2% growth in the NAV. Investors from 2017 have been paid in the order of 52c of dividends in the last eight years and the NAV today is just above 105c, and we were 98c when we listed. So on average about 7% return for investors since IPO.”
O’Donnell argues that the “dislocation” in the share price is “one of the opportunities for investors today to get an attractive entry point to the story. NAV is the right metric to judge the valuation of the business by.”
For now, there’s been little interest from local punters. Despite the company having a market cap of almost R20bn, there are few trades in the stock; last week Thursday, for example, only R20,000 of shares traded, with only one person on the offer, according to a small-cap analyst Currency contacted. (“I might look at it for my personal account though,” he said.)
O’Donnell says that’s to be expected. “The last few days were really a stepping stone for the business, and we’ve made it very clear that we’d like to move onto the main board relatively quickly. When the market conditions are right for a capital raise, we hope to be able to do that. By coming early we’re giving investors the chance to get to understand the sector and the company, [and] get behind us a bit earlier than by just coming with a big bang approach.”
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