This is financial engineering at its best or should that be worse as that 179 page annual report seeks to confuse the hell out of me so thanks for picking it apart. Poke around at the operating level and you encounter a labyrinth of companies and holdco's and you'll find at the project level most don't disclose much because they fall below the threshold for small company accounts. The couple of bigger ones that do have full accounts manage to make a loss although as run up the various intermediate levels that that becomes a dividend payment to TopCo.
The whole edifice is built on the ROC/FiT subsidies and once gone it will be toast of course along the way you will have got some reasonable dividends. However, they were greedy and shouldn't have boosted it up after the Ukraine induced power spike and there not the only one to have done that. Long run power prices are falling (well short of Trump piling into the Middle east) and there are two key risks here (i) solar is getting saturated and forcing power prices negative at the time of the day when solar irradiance is at its best (ii) REMA in all likelihood is going to change how pricing works be it zonal or renewables being decoupled from gas either will screw pricing assumptions.
So as you rightly educe this one is eating itself.
so by rule of 72 you get your money back in 6 years but with NAV likely to be well depleted by end of year 6. If interest rates stay high or more likely start to rise again due to debt levels then discount rates will stay the same level or more likely rise further depressing SP.
You could make the case of investing in government debt, bond etc at 6% but still have you capital in full at the end.
If your not invested then risk premium doesn't seem to favour it over risk off assets although i'm not a fan of gov debt either.
I'm conflicted as a share holder which normally means i should sell it as not a comfortable hold.
Hi OB - Thanks for highlighting the dog out of FGEN, SEIT and NSEF (the last one!)
Judging by the comments this one is attracting. I bought this peak low rates and sitting on 20% loss. Am pretty sure could sell and throw it in GPM and wait till end of the year and would be back in profit.
I'm still reading Nick Sleep letters...
In our opinion, in dealing with mistakes the best state of mind is non-judgmental forgiveness.
Parents will recognise that if their child thinks right, they will make mistakes, work it out for
themselves and learn. They do not need to be judged or punished: instead, they need support,
from themselves and others. If they do learn, then the mistakes are likely to be small compared
to the value of what has been learnt. In investment terms, once lessons have been learnt,
mistakes can be put on a price earnings ratio of one and the resultant, conditioned, good
behaviour on a ratio of more than one. In other words, mistakes become net present value
positive.
Lets hope i learn the lesson of avoiding yield traps. You could argue SEIT might be one but hopefully my judgement here is better. Buying at 45p meant further downside must be limited.
thanks for the analysis. It is complicated, and I am no accountant.
As a form of validation/triangulation, I tried something simple - I focused on the actual energy produced (seemingly simple...)
-NESF: at a market cap of 413mio annual generation was 830GWH - so 0,49mio Market Cap per actual generation
-DORE was just taken out (20.06) at a market cap of 172mio and annual generation of 324 - so 0,53mio Market Cap (buyout price) per actual generation.
>against this (naive? simplistic?) perspective, NESF is ~10% below the take out price that was just acchieved for DORE
--notes: interestingly, this sheds light on the 'NAV' of NESF: at yesterdays take-out of DORE its NAV per GWH of actual generation was ~589.000GBP; while NESF's reported NAV per GWH of actual generation stands at 659.036GBP - so somewhat more 'NAV' is needed for same generation.....
--note: DORE is only 43% solar and investors may have differend appetites for the source of energy. Fair and square. Hydro (DORE has a lot of it) is appealing
LSE:ROOF (Atrato Onsite) was taken out last year and was 100% solar, so maybe a better comparison.
Tried to put the historic figures together: ROOF was taken out at a price of 220 mio, with a capacity of 204MW and estimated annual generation of 194 GWH - so against reported capacity, ROOF fetched 1,07 mio per MW capacity, while NESF is valued (market cap) at 0,44 mio per MW capacity.
....so, this analysis did not get me conclusive results. On the one hand, DORE was bought at a very slight premium to NESF (in terms of money per generation), but way cheaper than what NESFs NAV implies. On the other hand, ROOF was bought (2024) at a substantial premium to where NESF trades.
I understand, that the actual assets will have some different aspects that are important. But it is hard to get my head around why there should be room for so much discrepancy when evaluated against actual capacity and actual generation.
I think you’d need to factor in a couple of points (this isn’t an exhaustive list)
Debt: you could be better to use EV (Enterprise Value)
Storage: the value of solar is potentially much higher if you can sell the energy at advantageous times of day. That would be a value judgment as to how you factored that in.
Lifespan: 20 year old panels vs new panels, so perhaps to consider a “MW years” value could be better.
Market: A MW sells for different amount in different parts of the world or even different parts of a country (the US has 3 grids in the lower 48) - Western, Eastern and ERCOT (Texas)
Thanks for this OB. I had my suspicions from reading the annual results: the drop in NAV per share from 104.7p to 95.1p is "coincidentally" about the same as the annual dividend. Sometimes the simple explanation makes sense.
From a Macro perspective, I'm getting an increasing sense that a simple business plan based on solar isn't enough. I know you are aware of this info source, but others may not be: https://grid.iamkate.com/ This online reporting of the mix of energy sources in our grid, AND THE HOURLY MARKET PRICES, shows how power prices dip markedly during the middle of the day, sometimes going -ve. If all you do is solar, your long-term pricing power will get weaker, subsidies are now 9yrs from expiry, and NESF's mix ix 97% solar, 3% Battery. The latter isn't going to move the dial (a contrast with Gore Street which seems to be in the right niche).
With regret, I've sold out of my remaining NESF. Still in GSF, FGEN, and SEIT although I'm puzzled by the opacity around Red Rochester.
I should write a more detailed reply but my take is they've kept their most profitable assets. The older assets are absolutely creaming it. Subsidised solar apparently can achieve payback in 6 years. Suggests rate of return in excess of dividend. Plus div earners taking advantage of the cheap leverage
"But isn’t it true that you always sell your best and easiest to sell assets first? " Well yes ... and SEIT sold UU solar after sales costs for £87 million booking a £13 million loss. How much do you think SEIT would get for Red Rochester today?
" then sold it for a slight premium to the 2023 valuation." .... then take into account the agent fees for selling ... so yes sold for a value 5% above NAV ... booked far less hence £87 Million put into the bank account - spin for shareholders.
Then go into the background of Ironclad and Primary Energy - find out common directors from the past - and start asking questions - would be my suggestion.
SEIT just confirmed in their FY25 presentation that the net (of fees) proceeds received for UU plus the distributions received exceeded the original Investment by a small amount.
I think I might have been the reader who asked the question!
I have now sold down 80% of my NESF holding and redeployed the capital since reading your article you kindly linked.
With the rebuffed merger approach and resignation of the chair reduced my confidence in NESF attractiveness and prospects going forward.
Happily I got out at 70p which is more or less exactly where I got in, and I had a few divis along the way, so not a disaster, thanks to your timely explanation and de-obfuscation. Many thanks!
I bailed SEIT overall a small profit but loss on the year this week ... Solar Revenues in the UK were poor in 2024 ... might be again so given that efficiency also drops with extended temperature ... when I see a common name as a US director being involved with £300 Million of assets bought by SEIT ... I'm reminded of John Paulson of abacus fame, and the USA .... there is a reason folk in UK struggle with US businesses ... we are too honest.
This is financial engineering at its best or should that be worse as that 179 page annual report seeks to confuse the hell out of me so thanks for picking it apart. Poke around at the operating level and you encounter a labyrinth of companies and holdco's and you'll find at the project level most don't disclose much because they fall below the threshold for small company accounts. The couple of bigger ones that do have full accounts manage to make a loss although as run up the various intermediate levels that that becomes a dividend payment to TopCo.
The whole edifice is built on the ROC/FiT subsidies and once gone it will be toast of course along the way you will have got some reasonable dividends. However, they were greedy and shouldn't have boosted it up after the Ukraine induced power spike and there not the only one to have done that. Long run power prices are falling (well short of Trump piling into the Middle east) and there are two key risks here (i) solar is getting saturated and forcing power prices negative at the time of the day when solar irradiance is at its best (ii) REMA in all likelihood is going to change how pricing works be it zonal or renewables being decoupled from gas either will screw pricing assumptions.
So as you rightly educe this one is eating itself.
you're getting a 12% dividend for 9y though, with some residual value post-ROCs too?
Hi Cass, You are - historically - and the music isn’t going to stop tomorrow either, probably. Factor in buy backs and it’s circa 14% in FY25 too,
OB
so by rule of 72 you get your money back in 6 years but with NAV likely to be well depleted by end of year 6. If interest rates stay high or more likely start to rise again due to debt levels then discount rates will stay the same level or more likely rise further depressing SP.
You could make the case of investing in government debt, bond etc at 6% but still have you capital in full at the end.
If your not invested then risk premium doesn't seem to favour it over risk off assets although i'm not a fan of gov debt either.
I'm conflicted as a share holder which normally means i should sell it as not a comfortable hold.
Hi OB - Thanks for highlighting the dog out of FGEN, SEIT and NSEF (the last one!)
Judging by the comments this one is attracting. I bought this peak low rates and sitting on 20% loss. Am pretty sure could sell and throw it in GPM and wait till end of the year and would be back in profit.
I'm still reading Nick Sleep letters...
In our opinion, in dealing with mistakes the best state of mind is non-judgmental forgiveness.
Parents will recognise that if their child thinks right, they will make mistakes, work it out for
themselves and learn. They do not need to be judged or punished: instead, they need support,
from themselves and others. If they do learn, then the mistakes are likely to be small compared
to the value of what has been learnt. In investment terms, once lessons have been learnt,
mistakes can be put on a price earnings ratio of one and the resultant, conditioned, good
behaviour on a ratio of more than one. In other words, mistakes become net present value
positive.
Lets hope i learn the lesson of avoiding yield traps. You could argue SEIT might be one but hopefully my judgement here is better. Buying at 45p meant further downside must be limited.
Dear Oak,
thanks for the analysis. It is complicated, and I am no accountant.
As a form of validation/triangulation, I tried something simple - I focused on the actual energy produced (seemingly simple...)
-NESF: at a market cap of 413mio annual generation was 830GWH - so 0,49mio Market Cap per actual generation
-DORE was just taken out (20.06) at a market cap of 172mio and annual generation of 324 - so 0,53mio Market Cap (buyout price) per actual generation.
>against this (naive? simplistic?) perspective, NESF is ~10% below the take out price that was just acchieved for DORE
--notes: interestingly, this sheds light on the 'NAV' of NESF: at yesterdays take-out of DORE its NAV per GWH of actual generation was ~589.000GBP; while NESF's reported NAV per GWH of actual generation stands at 659.036GBP - so somewhat more 'NAV' is needed for same generation.....
--note: DORE is only 43% solar and investors may have differend appetites for the source of energy. Fair and square. Hydro (DORE has a lot of it) is appealing
LSE:ROOF (Atrato Onsite) was taken out last year and was 100% solar, so maybe a better comparison.
Tried to put the historic figures together: ROOF was taken out at a price of 220 mio, with a capacity of 204MW and estimated annual generation of 194 GWH - so against reported capacity, ROOF fetched 1,07 mio per MW capacity, while NESF is valued (market cap) at 0,44 mio per MW capacity.
....so, this analysis did not get me conclusive results. On the one hand, DORE was bought at a very slight premium to NESF (in terms of money per generation), but way cheaper than what NESFs NAV implies. On the other hand, ROOF was bought (2024) at a substantial premium to where NESF trades.
I understand, that the actual assets will have some different aspects that are important. But it is hard to get my head around why there should be room for so much discrepancy when evaluated against actual capacity and actual generation.
All discussion much appreciated,
regards
That’s an interesting perspective.
I think you’d need to factor in a couple of points (this isn’t an exhaustive list)
Debt: you could be better to use EV (Enterprise Value)
Storage: the value of solar is potentially much higher if you can sell the energy at advantageous times of day. That would be a value judgment as to how you factored that in.
Lifespan: 20 year old panels vs new panels, so perhaps to consider a “MW years” value could be better.
Market: A MW sells for different amount in different parts of the world or even different parts of a country (the US has 3 grids in the lower 48) - Western, Eastern and ERCOT (Texas)
OB
Thanks for this OB. I had my suspicions from reading the annual results: the drop in NAV per share from 104.7p to 95.1p is "coincidentally" about the same as the annual dividend. Sometimes the simple explanation makes sense.
From a Macro perspective, I'm getting an increasing sense that a simple business plan based on solar isn't enough. I know you are aware of this info source, but others may not be: https://grid.iamkate.com/ This online reporting of the mix of energy sources in our grid, AND THE HOURLY MARKET PRICES, shows how power prices dip markedly during the middle of the day, sometimes going -ve. If all you do is solar, your long-term pricing power will get weaker, subsidies are now 9yrs from expiry, and NESF's mix ix 97% solar, 3% Battery. The latter isn't going to move the dial (a contrast with Gore Street which seems to be in the right niche).
With regret, I've sold out of my remaining NESF. Still in GSF, FGEN, and SEIT although I'm puzzled by the opacity around Red Rochester.
I should write a more detailed reply but my take is they've kept their most profitable assets. The older assets are absolutely creaming it. Subsidised solar apparently can achieve payback in 6 years. Suggests rate of return in excess of dividend. Plus div earners taking advantage of the cheap leverage
"But isn’t it true that you always sell your best and easiest to sell assets first? " Well yes ... and SEIT sold UU solar after sales costs for £87 million booking a £13 million loss. How much do you think SEIT would get for Red Rochester today?
Keith/Cat,
It's a silly question. Red Rochester is not for sale and there's clearly a turnaround plan with that asset.
SEIT bought UU Solar in July 2022; the Bank of England's base rate was 1.75%.
They sold UU Solar in May 2024; the Bank of England's base rate was 5.25%.
A loss on disposal isn't at all surprising in such a different environment.
It's also more accurate to describe the sale as they wrote the asset down in 2023 and then sold it for a slight premium to the 2023 valuation.
SEIT got £80m for a 69MW which is nearly double (per MW) to what NESF achieved for its 2 assets.
OB
" then sold it for a slight premium to the 2023 valuation." .... then take into account the agent fees for selling ... so yes sold for a value 5% above NAV ... booked far less hence £87 Million put into the bank account - spin for shareholders.
Then go into the background of Ironclad and Primary Energy - find out common directors from the past - and start asking questions - would be my suggestion.
Keith/Cat/The Cat
SEIT just confirmed in their FY25 presentation that the net (of fees) proceeds received for UU plus the distributions received exceeded the original Investment by a small amount.
OB
I think I might have been the reader who asked the question!
I have now sold down 80% of my NESF holding and redeployed the capital since reading your article you kindly linked.
With the rebuffed merger approach and resignation of the chair reduced my confidence in NESF attractiveness and prospects going forward.
Happily I got out at 70p which is more or less exactly where I got in, and I had a few divis along the way, so not a disaster, thanks to your timely explanation and de-obfuscation. Many thanks!
I bailed SEIT overall a small profit but loss on the year this week ... Solar Revenues in the UK were poor in 2024 ... might be again so given that efficiency also drops with extended temperature ... when I see a common name as a US director being involved with £300 Million of assets bought by SEIT ... I'm reminded of John Paulson of abacus fame, and the USA .... there is a reason folk in UK struggle with US businesses ... we are too honest.