By Zimele Mbanjwa
Greencoat Renewables - Sustainable energy for sustainable cashflows
Greencoat Renewables has listed on the Johannesburg Stock Exchange (JSE) by way of an introduction. The company is already listed on the Dublin and London Stock Exchanges.
Incorporated in 2017, Dublin-based Greencoat Renewables is an investment holding company that is focused on investing in renewable energy infrastructure. It primarily operates in the wind energy sector, acquiring and managing wind farms across Europe. Greencoat's goal is to provide sustainable energy solutions while delivering stable returns to investors. The company currently boasts 40 renewable energy generation and storage assets across five primary European jurisdictions (Ireland, Germany, Spain, France and Sweden) with supportive renewable energy policies.
Greencoat's portfolio of assets is worth ~€2.5 billion and boasts renewable energy generation capacity of ~1 493 Megawatts (MW). Moreover, its fleet of assets is mostly modern, with 85% less than ten years old. The company aims to hold assets with a capacity of 400 Gigawatts (GW) of energy generation by 2030 across these jurisdictions through acquisition and aggregation opportunities.
The group's assets are managed in an investment trust by investment manager, Schroders Greencoat LLP. Schroders Greencoat, founded in 2009, is a specialist manager focused on investments in bioenergy, renewable heat, solar, and wind energy infrastructure across the United Kingdom (UK), Europe, and the United States (US). Schroders Greencoat had around £11 billion in assets under management at 31 December 2024.
Strategy for growth
Over time, Greencoat's goal is to diversify its asset base and geographic footprint further. The company, through its subsidiaries, seeks to invest in assets with robust contractual structures and that deliver long-term predictable cash flows which can be further boosted through asset management. Leverage is prudently used to finance acquisitions and amplify target returns.
A steady returns profile
Greencoat seeks to pay its investors an annual euro dividend, paid quarterly, that progressively increases in line with the growth of its portfolio value. Operationally, the company sells clean electrical energy generated through its wind and solar infrastructure to its jurisdiction's grid or off-takers. Growth is further generated through active asset management, reinvestment of excess cash flows, and the prudent use of leverage.
Since 2017 when the company listed, it has generated cash of €828.5 million, of which €368.5 million has been paid out in the form of dividends and €381.7 million has been reinvested back into the business. Over the seven years to 31 March 2025, the dividend has grown at a CAGR of ~2% (~5% in South African rands), with the forward dividend yield being 9.4% at the time of writing. The group's strong cash generative profile has supported a gross dividend cover ratio of 2.2 times since IPO and its dividend policy of increasing the annual dividend by up to Irish CPI.
According to Schroder Greencoat's projections, the group is expectant of continued positive cash generation over the short-to-medium term supported by intensive asset management. Essentially, internal targets are for ~€718 million in cash generation through to 2029 driven by various capital and income growth initiatives such as energy yield improvements, creation of ancillary revenues, technical enhancements and cost management. Over the next five years, dividend payments of around ~€383 million are targeted (~34 euro cents per share). The outlook assumes 1% dividend growth per annum, 60% excess cashflow reinvestment and debt repayments using surplus cash. These assumptions are regarded as being conservative as they excluded potential power price increases.
Although power prices have continued to subside in Europe, the group remains largely insulated to the volatility, with a notable 71% of total cashflows being contracted through to 2029 - providing visibility and stability of inflation protected revenues, all while leaving ample room to harvest accretive opportunities where available. Furthermore, the group's contract duration typically ranges between five-to-15 years and are primarily with government, which supports the stability. However, the group's exposure to private contracts is increasing, with various Power Purchase Agreements (PPAs) amounting to over 500 GWh recently signed.
Long-term fundamentals will benefit from policy support in EU
With Europe largely regarded as the global leader in the clean energy transition due to its robust regulatory push, Greencoat is well positioned as a pure-play renewables company to exploit the escalating demand for renewable energy infrastructure assets in Europe. The European Union's (EU's) objective is to be climate-neutral by 2050. EU renewable energy deployment is at a record level due to various supportive policies such the EU Fit for 55 framework and the Net Zero Industry Act - especially following Russia-Ukraine war related energy market disruptions. According to the International Energy Agency (IEA) in its Global Energy Review 2025, global energy generation and demand increased by 4% in 2024, with 80% being met by renewable energy. Moreover, power generation from renewables accounted for ~40% from a global perspective. As expected, the shifting global energy mix was more evident in the EU where renewables accounted for nearly 50% of power generation, far outstripping the global average.
Looking ahead, current state policy scenarios (STEPS) estimate that the share of electricity generated by renewable energy in the EU will rise to around 66% (wind and solar accounting for ~52%) by 2030. Battery manufacturing capacity is expected to increase by at least four times from current levels by 2030, while installed solar PV and wind capacity is expected to more than double. At that time, the market size is expected to be ~ €1.4 trillion. Part of the robust growth will be driven by the surge in clean energy demand by AI Data centres. In fact, one of the recently signed PPA contracts is a ten year pay as produced deal with a Data Centre REIT in Ireland. European data centre energy demand is expected to grow at ~9% per annum through 2035.
Financials
In FY24, Greencoat's adjusted headline earnings per share (HEPS) declined 26% to 4.5 cents - below expectations of 7 cents. Full-year revenue declined 7.8% to €113.9 million and cash revenue fell 6% to €357.2 million. This was a function of 10% below budget electricity generation during the year due to slower-than-expected wind speeds, grid outages and other availability challenges, as well as weak pricing in major markets.
Gross cash generated amounted to €148.6 million (FY23: €196.7 million). The cash yield has continued to normalise along with power prices, with the net cash yield at period end sitting at 11%. The group declared a dividend of 6.7 cents against expectations of a 6.8 cents payment. The board; however, increased the target dividend for 2025 by 1% to 6.81 cents.
Greencoat's balance sheet is solid. Gearing was at 56.6% at the end of March, much below covenant of 70%, and interest cover at 4.4 times (covenant: 2.5 times). Total cash amounted to €107.3 million, with €241 million in an undrawn revolving credit facility. The group's average term of debt is 3.5 years, with the next term debt maturity expected in 2027 following the already agreed upon term extension on €275 million of debt set to mature in October 2025. After the extension, the group's average cost of debt will be ~3.5%, with the average term being 4.6 years through 2030.
Investment case
Risks
Consensus considerations
Consensus is bullish with 75% of analysts having a 'Buy' recommendation on the stock, and 25% of analysts having a 'Hold' recommendation. The average target price is €1.09, which suggest a 12-months potential upside of 47% relative to the current market price.
Valuation considerations
We considered valuation through a net asset value (NAV) lens and also considered the stock's dividend yield over time.
Net asset value
Greencoat's discount to NAV had widened to ~30% as at the end of March and is trading at similar levels currently. The valuation gap can be attributed, in part, to a flow of capital out of capital markets into government securities around 2022, and more recently the lower cash generation due to lower-than-expected power production and lower power prices in parts of continental Europe. Management has actively responded to the discount gap in a market where valuations across listed renewable infrastructure remain subdued through measures such as buybacks.
Indeed, Greencoat trades at similar discount relative to peers (on a price to NAV basis) as it has averaged over the last five years.
Dividend yield
Historically, Greencoat's dividend yield has been higher compared to other European-listed pure-play renewable players, although the discount is currently larger than usual.
On this basis, the stock also looks undervalued. Management has noted that the derating of the sector and indeed the company over the last year has been a function of capital flowing out of renewables and other higher-yield sectors and into other asset classes like bonds (following a notable increase in yields over the last few years). Recent disposals within the portfolio have been concluded at or above NAV, which gives us reasonable confidence that the portfolio's asset value is not overstated. Dividend cover is high - providing comfort that the current expected cash returns trajectory is sustainable.
