IG’s Angeline Ong catches up with Octopus Renewables Infrastructure Trust’s David Bird to discuss why he thinks the world is going to need more floating offshore wind capacity, and what opportunities this will lead to. Bird also explains why he thinks current share prices do not reflect the real value of the sector.
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[MUSIC] Hello, welcome to IG's Trading the Markets, where we talk to different people in different industries to give you a clear idea of where you can position yourself better. Today, we're talking to David Bird from Octopus Renewables Infrastructure Trust. Thank you so much for joining us. It's such a key time at the moment because what we are seeing is potentially Trump looking increasingly likely like you might get a second term. Also, both sides of the Atlantic, and also in Asia, the sense that most people on the ground are still feeling the cost of living crisis. So, I have to ask you, David, do investors care enough at this point in time about renewables? I think investors do care about renewables. I think it's widely understood that we need to get more renewables built and that the economy of the future is going to be powered by renewables. I think with the cost of living crisis, actually what's really important to remember is that getting more renewables built and built more quickly helps with that. Renewable energy is, in most places in the world now, the cheapest form of electricity, and having more renewables means we're less dependent on fossil fuels and therefore less exposed when there's big price spikes in gas or other commodities, so actually investing more into renewable energy should help with the cost of living crisis and help make economies more resilient, 20 future sort of commodity shocks. David, the reality though is it's really, really linked to the price and the cost of oil, and if we have Trump coming in, he's already said drill, baby drill, and let's face it, Biden didn't tighten the taps really, although he said he was going to lay out all those subsidies but really they are pumping and drilling like there's no tomorrow at the moment. Is this putting or going to put continued pressure on the renewable sector? I think if you look at where Oritz focused, which is primarily in Europe, but we also can invest in Australia, there's real positive, both political and social momentum still behind renewables. I don't think the US election is going to change that. I don't think the US election makes the business case for investing in owning and building new renewables in Europe any less attractive than it already is. Let's talk about Europe now because I know you're focused particularly on wind. You have talked before about the need for more fluting offshore wind. Is this coming down the pipeline? Are we seeing more of this? So it can invest across a range of renewable technologies, our focus is on having a really quite even balance between wind and solar. Where we think floating offshore wind is really interesting is perhaps a few years down the line. So we've made an investment into a developer that's called Simply Blue Group. They are developing that next wave of floating offshore wind projects and the reason they're really interesting is it just gives you access to bits of the sea that you really couldn't build fixed bottom turbines in because it's just too deep. We're going to need to access those bits of seabed in order to deliver all the energy we need. It's not going to be tomorrow, this is an investment into a developer that's going to be bringing projects forward over the next decade or so. But we do think it's going to be a really important part of the energy mix in the future. You talked about this 50/50 mix in the next five to ten years. Where do you think you'll be more weighted towards? Is it solar or wind? So we want to keep a balance between the two. One of the things that set our part when we launched about five years ago was that focus on diversification. We think diversification is just as important within a renewable energy focus trust. It is more generally in investing and having both wind and solar in roughly equal balance in your portfolio means if you have one year where the wind speeds are a bit lower, quite often you actually see that solar performance is better. So you get that smoothing of cash flows year on year, also season on season it tends to be less windy in the summer, but right now as we're seeing it's a lot of solar generation. So we intend to keep that balanced mix in the portfolio. And just looking at your last financial report, you had plus 2.1% full year 2023, negative 4.4% full year 2023 shareholder return, do you see the same sort of trajectory for 2024-2025? So on the now side of things, a big component of that now of return is the dividend that we pay out. We increased our dividend going from 2023 to 2024 target, in line with CPI, that's the third year in a row that we've tracked inflation. We did see a little bit of downward pressure on net asset value going through the end of Q1 as power prices fell a bit faster than was expected, but we have since then already delivered other initiatives that are going to contribute positively to NAB. So we've signed some new contracts for selling some of the power from one of our Scottish wind farms, which is going to have a positive impact on NAB. We've also brought assets through from construction into operation, which also tends to contribute positively to NAB. So we see the portfolio and the value of the portfolio is really robust. What we can't directly control is the share price, and there's definitely been downward pressure on that so far in 2024, but we see that as meaning that right now the shares offer incredibly good value. We don't think the falls are justified or reflect the value of the assets. So we think that there's real potential for investors who are looking at the share price right now. Yes, you've talked about this, David, haven't you in the past about how across the sector really the share prices don't reflect real value? Yeah, that's right. We understand that in a world where interest rates have been high, that investors can find interesting yield in perhaps places they couldn't before. But if you look at the yield that are it and other sorts of vehicles are offering, but the share price where it is right now, it's about an 8% dividend yield, and with potential for capital growth on top of that, and with the track record of having moved the dividend in line with inflation year on year, and at those kind of levels, we just don't think the discounts to net asset value or anything like justified. And we're seeing we've just recently announced the sale of an asset. We've had a number of asset sales over the last year or so, and on each occasion, we've been able to sell either in line with or above net asset value. So that should give investors lots of confidence that the assets are fairly valued in the nabs and so the share price is really good value. Lovely. Thank you very much, David, there from Octopus Renewables in the structure trust. We look forward to seeing you again in the next quarter. This is IG's trading the markets for more on how to position and trade your favourite financial instrument. Do look up IG Com on the short paper, shorter trading strategies, or search my name on Google or Chris Beecham or Axel Rudolf with the instrument that you trade for the latest analysis. (upbeat music) (gentle music)
