Foresight locks in energy returns

Specialist fund managers are one of the few areas of the sector to have ridden out the worst of the downturn in valuations, as well as continuing to attract funds to manage. Foresight, on which we initiate regular coverage, is an asset manager that holds interests in renewable energy investments, as well as an unusual private equity business that bases itself regionally within the UK. That approach looks promising so far, with assets under management increasing by 23 per cent to £8.8bn and a big hike in the dividend in these full-year results.

Foresight caters to a broad-spectrum clientele with approximately 70 per cent institutional and investment clients and 30 per cent retail. The business is separated into three separate management areas: infrastructure, private equity and Foresight Capital Management, with infrastructure by far the largest division with AUM of £6.3bn. Most of this is invested in diverse renewable energy assets, both in the UK and other markets such as Australia – where the company announced the AUS$140mn (£79.6mn) acquisition of Infrastructure Capital alongside the results.

As with other managers, it relies on recurring fees and Foresight has 87 per cent of its total revenue recurring annually. It also booked a big increase in performance fees for the year, though these were less material at just over £3mn.

Chairman Bernard Fairman said he didn’t think that inflation would play much of a role beyond the end of this year.

“The money supply has collapsed and if you look at how governments are acting in a procyclical way, there are probably going to be mild recessions everywhere,” he said.

Fairman said the main issue for investors in renewable assets is how yield compression has raised the price of “second-hand” investment assets, which is radically different when compared with the higher interest rate environment that Foresight funds worked with in the early 2000s. However, he said that the company has locked in returns of 6 to 7 percent in its diverse energy portfolio for the next 20 years.

Foresight is definitely an interesting proposition, particularly as its portfolios tend to have inflation protection built-in. The shares are rated at 15 times broker Numis’s EPS forecasts for 2023. That is roughly the same as larger companies in the sector that are doing a lot worse. Speculative buy.