Solar investment trust cuts payout and launches asset sales programme as it seeks to narrow persistent discount to net asset value
NextEnergy Solar Fund Ltd (LSE:NESF, FRA:5NE), the London-listed solar energy investment trust, has announced a sweeping strategic reset that will cut its dividend, expand asset sales and shift focus towards energy storage as it attempts to reverse a persistent discount between its share price and the value of its underlying assets.
The company, which owns 99 operational solar and energy storage assets primarily in the UK, said it had concluded a comprehensive review of options, including a wind-down, merger with rivals and a potential take-private, before settling on a strategic reset as the path most likely to deliver long-term value for shareholders.
The most significant immediate consequence for investors is a reduction in the annual dividend, which will fall from its current target of 8.43p per share to an estimated range of 4p to 4.6p for the financial year ending March 2027, equivalent to a yield of approximately 7% to 8% based on the share price as of 10 March.
The reduction follows a shift from a progressive dividend policy, under which the payout was increased each year, to one that distributes 75% of operating free cash flows after debt servicing and operating costs.
The company said the new approach would free up approximately £40 million of operational cash flows over the next five years, with the retained capital directed towards debt repayment and reinvestment in higher-yielding opportunities.
NESF will also extend its capital recycling programme, selling up to an additional 120 megawatts (MW) of solar assets it has identified as offering limited near-term value enhancement potential, following the recent completion of an earlier phase that disposed of 100MW.
From 2027 onwards, the company also expects to receive proceeds from the realisation of a $50 million investment in a private solar infrastructure fund, NextEnergy III, and two associated co-investments representing 116MW of capacity.
Capital generated through asset sales and retained cash flows will be prioritised first towards debt reduction, with the company targeting a loan-to-value ratio of between 40% and 45% of gross asset value, down from its current level.
Remaining capital will be deployed into repowering existing solar sites with newer technology and adding co-located battery storage, with the company intending to seek shareholder approval to raise its energy storage allocation from 10% to 30% of gross asset value.
