Out-of-favour renewables trust NextEnergy Solar (LON:NESF) rallied on news the company has put itself up for sale. The board blamed the decision on a wide share price discount to net asset value (NAV) that has ‘persisted for several years’. It also bemoaned the short-term horizons of some investors.
The launch of a formal sales process comes as no great surprise. It follows the sales process conducted by rival Bluefield Solar Income Fund (LON:BSIF). This culminated in a successful £548 million bid from Drax (LON:DRX).
NextEnergy Solar’s proposed dividend cut and capital recycling plan also met with a poor investor reaction.
The solar energy investor was facing its third continuation vote in just three years. Performance has disappointed, with NextEnergy Solar delivering negative share price total returns over one and five year periods.
A ‘challenging experience’
Following engagement with major stakeholders, the high-yielding fund has fired the starting pistol on a formal sales process.
NextEnergy Solar is now inviting bids from ‘bona fide parties’. The board intends to conduct a process focused on parties which ‘understand and value the full potential of the company’.
The trust said it continues to have a ‘challenging experience as a listed company, including a share price discount to its reported NAV that has persisted for several years and impacted its ability to raise new equity capital to fund its future growth.’
Furthermore, the board believes the trust is ‘challenged by the increased focus on shorter-term investment horizons by some parts of the public equity markets’.
Winterflood prefers Foresight Solar
Winterflood’s Ashley Thomas commented: ‘While we don’t expect the NextEnergy Solar outcome to be as positive as Bluefield Solar Income Fund’s circa 10% NAV discount take-out, the sales process announcement is likely to be viewed positively given the fund’s current 39% NAV discount.’
Thomas added: ‘While the NextEnergy Solar share price is likely to outperform today, fundamentally we view Foresight Solar Fund (LON:FSFL) as more attractive, as both funds trade on a similar £0.8 million/MW GB installed valuation but Foresight Solar has a stronger balance sheet and slightly longer asset life.’
There is no guarantee that NextEnergy Solar will attract a bid at an acceptable price. However, the board is right to test the market’s appetite for a takeover. NextEnergy Solar’s NAV discount stands at an unsustainable 37.4%.
Bluefield Solar Income Fund’s success in drawing a bid from Drax has spurred the board into further action.
FY26 proved a tough year for NextEnergy Solar. NAV plunged 20%, from 95.1p to 76.1p. This reflected falling solar power price forecasts as well as government policy changes.
A ‘strategic reset’ to strengthen the balance sheet was announced in March. This saw NextEnergy Solar slash its dividend from 8.4p to between 4p and 4.6p and extend its asset disposal programme.
Read the press release here: https://www.londonstockexchange.com/news-article/NESF/commencement-of-formal-sale-process/17688153
