US Solar Fund (USF)

24/03/2022

Results analysis from Kepler Trust Intelligence

US Solar Fund (USF) has reported its first results covering a full year of operations for the total portfolio. In the year ending 31/12/2021, the trust paid dividends of 5.5 cents a share, in line with the target declared at launch. Additionally, the NAV rose 1% over the year to $0.975, boosted by useful life extensions for a number of assets, a reduction in the discount rates as market interest rates fell, and an uplift in the valuation of USF's interest in and option over the MS2 project in California.

Chairman Gill Nott said: "2021 was an exciting year for the Company as it continued to deliver on its targets. The board and the investment manager remain focused on delivering steady cash flows from the existing portfolio of assets, whilst looking for suitable opportunities in solar and storage to grow the company."

Kepler View

This was a promising year for US Solar Fund (USF), with the portfolio fully operational and delivering the dividends targeted at launch. The refinancing has put the trust in an advantageous position for the future, while it has cash on hand to finance further expansion. We think that expanding into battery storage should offer a diversified source of resilient cashflows. It also burnishes the ESG credentials of the trust: expanding the use of renewables to power the grid will likely require expanding battery capacity.

USF offers an attractive prospective yield of 5.9% on the current share price (as of 23/03/2022). This yield is relatively secure thanks to the policy of fixing out the majority of the trust's cash flows - at a weighted average of 14.4 years. As a consequence of this stability shareholders do give up exposure to the near term power price. Although this protects the trust from near term volatility including downward movements, it also means that USF will not see uplift from short term movements. USF's peers largely do have exposure to short- and medium-term power price fluctuations, and some of them have seen a rise in income and NAV via recent increases in wholesale power prices. We think this may explain USF's wider discount than peers. However, for investors looking to lock in long-term income, the discount has created an opportunity to do so at a higher initial yield.

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