Liquidation: 50%+ Upside
This idea was shared by Daniel.
ENRG is a £270m trust that has just announced an asset realisation plan that is expected to take up to 3 years. Currently trading at a ~35% discount to NAV, with management well incentivised and a covered 10% dividend yield, I believe the total return is attractive.
The portfolio is globally diversified and straddles both core renewables (solar, wind, hydro) and fossil assets with a sustainability tilt.
The largest asset at 27% of NAV is a US terminal storage asset on the Texas gulf coast, helping to transit surplus high sulphur oil from Mexico to more efficient refineries in the US, and southbound flows of higher quality fuel to Mexico. Concerns over this site after the Liberation Day announcement may have been the cause of the widening discount, but as of the portfolio update yesterday VH have not seen any adverse impact on trading. The discount rate used to value this business is 7%.
The second largest position at 24% of NAV is a 198MW run-of-river hydropower plant in the state of Espírito Santo, ranked as a top 10 hydro plant in Brazil. With over 30 long-term inflation-linked PPAs representing c. 85% of the plant’s total revenues, this is a high quality infrastructure asset.
The third largest position at 12% of NAV is a 10MW gas power station in Nottinghamshire, UK recently fitted with cutting-edge carbon capture and reuse (CCR) technology. The power generation is under PPA at attractive margins whilst the food-grade carbon dioxide has been sold via a CPI-linked offtake agreement for use in carbonated beverages.
Another 12% is in a set of Australian PV farms with co-located battery storage. The addition of BESS has led to the assets generating “ 1.5 to 2 times the revenue of standalone solar systems during the first quarter”.
Other assets include 40MW of Solar PV projects in Brazil constructed between 2023–2025, and some smaller wind and solar farms in Sweden and the Canary Islands.
There are a number of projects under construction, notably a pair of 10MW and 98MW Solar assets in Spain due for energisation by the end of June and sometime next year respectively, as well as another Brazilian PV asset due to come online in H1.
The trust also has options to a number of ready-to-build pre-construction projects, including a 20MW wind farm in Sweden. Whilst this exposes investors to construction costs, the programme has the potential to increase NAV whilst protecting the downside through developer premiums with automatic adjustments for cost overruns and abortion mechanisms.
Whilst a quarter of the portfolio was under construction in March, this should reduce to single figures by next year once the Spanish Solar PV projects are built.
Around 80% of portfolio revenues are contracted for the next 15 years. Total portfolio EBITDA is as follows (using estimated exchange rates for 2024):
This means EV/EBITDA at NAV is 10x. At the current discount the multiple is reduced to 6.5x. 2024 performance does not include the 10MW UK gas plant or 7MW of Brazilian Solar already energised at the start of this year.
Both the Brazilian real and Australian dollar weakened against the dollar during late 2024 and into early 2025, though this has since been reversing. Both have significantly weakened against the strengthening Pound over the last twelve months. The portfolio has virtually no debt, with gearing at only 6.5%. Some project-level finance will be raised in connection with the construction project.
The proposed realisation strategy is to conduct a wind-down over the course of three years, whilst maintaining a dividend as cash flows allow. Management’s annual base fee will be £4.25m (roughly equivalent to the current charge), but hurdles at 85%, 90% and 100% of NAV (increasing each year) will reward the IM with 15%, 17.5% and 20% performance fees over the hurdles. At 90% realisation, this would equate to a ~£3m performance fee, a substantial increase over the base fee but still less than 1p per share. These will be accrued until the entire portfolio is sold off. I feel the uncapped nature and stepped hurdle to encourage quicker sales if possible means this is amongst the best structured performance fee arrangements for an infrastructure trust wind up I’ve seen.
Using a 90% realisation after costs, which I believe is realistic given recent M&A activity in the renewables and energy sectors, and knocking a further £3m performance fee off results in proceeds of ~92p per share. Assuming 10% dividends continue for two years until sales complete with no further distributions until the end of year three, the total return is ~103p, 53% upside. At the current price of 67.5p, IRR is around 15%, which is attractive given the likelihood of a partial capital return earlier than the three years are up.
Why the extended timeline? It’s probably driven by the varying technology types, jurisdictions but most of all the construction-stage assets. They allude to this pretty openly in the announcement:
3-year time horizon balances objectives: the Board and Victory Hill believe that certain assets in the Portfolio may be sold at a suitable value much sooner than 3 years. However, given the Company’s assets are at different stages of operational maturity, it is likely that some assets may take up to 3 years to sell at a price that would satisfy the Board’s view of value. The 3-year time horizon should allow Victory Hill to manage the assets into a sales process considerately without immediately becoming a ‘forced seller’. The Board and Victory Hill are confident that the Portfolio can be realised over a period of 3 years without exposing Shareholders to new asset-specific risks.
Over 100MW are still under construction and these would be difficult to sell until complete. Once most of the portfolio is operational next year (The 98MW Spanish PV is the biggest development project), this risk should subside. Whilst the UK CCR asset uses a new technology, the UK energy market is attractive for gas plants and there are no plans for a complete phaseout – in fact recent announcements from the Department for Energy have confirmed at least 5% of electricity generation will remain gas-powered under the net zero target, and one would think low-emission generators like these would be prioritised. The rest of the assets are fairly non-descript as renewables come, though the US storage terminal may attract fewer bids whilst Trump tariff uncertainty persists. I think the last point is also why this situation exists in the first place, so whilst there is a risk to that asset if geopolitical noise worsens, I can’t see the fundamentals disappearing for either one of a) Gulf Coast refineries relying on Mexican feedstock (bar a significant easing of sanctions on Russian oil) or b) Mexico needing cleaner fuel.
Below is a short exchange we had with Daniel on this setup.
Dt:
My concern with this setup is uncertainty regarding realizable NAV vs the one we have on the balance sheet. Annual report gives some detail on how NAV is calculated and the discount rates used seem a bit too low for me. These are basically just a couple of percentage points above the risk free rates for the respective countries. I have no clue if the assets that are 80% contracted can actually sell for these discount rates. So I kind of had a suspicion that NAV was a bit overstated – investment manager was incentivised to inflated NAV as it was getting paid as % of NAV.
And now looking at the latest filing, I’m not sure if the proposed incentive structure is actually a good for shareholders, specifically because of this part: “The Performance Fee will be the Performance Percentage (defined below) of all realisation proceeds (the “Realisation Proceeds”) of Portfolio assets plus any dividends paid during the Realisation Period”. If I am reading this correctly, then the easiest way for the IM to boost performance fees is to wait until year 3 for any disposals (this way the largest amount of dividends will accumulate). It is also not clear if dividend payouts will be counted as part of “Total Proceeds” for the purposes of performance percentage calculation.
Daniel:
I’m more relaxed on the NAV because aside from the US asset the premiums look achievable. Australian and European assets are 350 and 550bps above respective 10Y yields. The Brazilian hydro facility was bought for $136m in 2022 when their 10Y yield was within 50bps of today’s and it’s value on the books now is essentially the same. It is true that the Brazilian assets are valued at 400bps below the nominal risk free rate, but most of their PPAs are inflation linked. If you take BRL inflation, “real” rates are around 8.5%, so it’s more like a 150bps real premium. Judging by the sensitivity, an additional 150bps in discount rate only decreases NAV by ~3.5p.
The US terminal is valued at around 12x EBITDA ($140m per Q1 factsheet + $30m debt). I can’t find many comps but this source says the current average for private midstream assets is 7x. The annual report does say there are minimum volume commitments in their contracts so that does minimise tariff risk, and it is strategically located, but I can’t imagine energy sentiment will be good enough to justify a double digit multiple on this business. So that’s why I think 90% realisation is the realistic ceiling. 10p off is equivalent to a ~25% discount on the US terminal and the 3p increased discount rate on the Brazilian assets. Even missing that slightly will be offset with upcoming increases in NAV from construction completions. In short, I don’t think NAV is miles off, as I mentioned in the OP, EV/EBITDA at NAV is c. 10x, which is below the listed peer average (both global renewables and UK renewable trusts), and this doesn’t take into account income will rise this year as projects complete.
On the performance fee, I agree the inclusion of dividends is a downside and makes it less aligned to investor interests – my understanding (and others on forums) is they are including dividends in their total return. Citywire reported that at least one analyst isn’t happy with the structure, though their concern seems directed more to the guaranteed portion. What’s interesting is the analyst says:
So I guess that mitigates the risk of them holding off for dividend accumulation. IRR is still attractive on a 36 month term in the low/mid teens if you presume a few more million in fees from the lower effective total return threshold but they are still incentivised to sell for as high as possible – it is ultimately uncapped and they capture a significant slice if they can achieve 85%. If sales disappoint IRR should still be low teens / double digits. If I’m wrong and they attempt fire sales that could create a worse scenario but they would then struggle to achieve any performance fees with lower realisation and fewer dividends, plus those mistakes would be offset by quicker capital returns and push IRR higher. There’s a couple of ways it could go but I don’t think it’s a dealbreaker due to the margin of safety.
These two points could be linked if this management’s way of creating a buffer because they know the US asset is not worth current NAV.
Feels like a lot needs to go right here.
On the “return”, why are referencing dividends? They will presumably just reduce the NAV anyway so it’s right pocket, left pocket. Overstates the return unless we think NAV stays stable (maybe true on storage, but skeptical on the rest).
Comping it, pif.to has traded at sub 6x for forever now and no one has tried to take it out. Seem to struggle to get value for developing mkts infra.
The Brazil hydro plant’s PPA is not as “long-term” as it seems. Only 30% of capacity is contracted through to 2037, while other PPAs are rather short-term (1-2 years).
Brazilian power price is very volatile, long-term PPAs are not the norm, and even PPAs are subject to renegotiations. FYI, Brookfield Renewable has a large Brazil hydro portfolio, and you can find a lot of data, industry background, and color in its reports and calls.
From ENRG 2024 AR:
“This plant has secured long-term PPAs for all of its assured capacity for both 2025 and 2026, as well
as nearly 30% of its capacity through to 2037. The programme’s operating partner and the Investment
Manager monitor the market for opportunities to strike new PPAs for the uncontracted capacity at
attractive terms, given the high level of volatility in the PPA market caused by changing weather patterns. Over the past five years, Brazil experienced three of its worst hydrological years in history, alongside two years of above-average conditions. This volatility in the spot market creates periodic windows of opportunity for securing favourable PPAs.”
ENRG shared a positive update last week with performance at it’s two largest assets, the US terminal and Brazilian hydro plant both above expectations so far this year.
Flipside is I don’t see them making as much money on their large Spanish project as prices are under pressure. Deducing from their financing facility it it has an enterprise value of €60m, or €0.6m per MW, which about in line – a European marketplace is currently seeing €550-780k for operating Spanish projects in the current environment.
https://polaris.brighterir.com/public/victory_hill/news/rns/story/w909new
https://www.pv-magazine.com/2025/07/02/prices-of-pv-assets-in-spain-collapse-or-necessary-adjustment/
The liquidation plan was formally approved by shareholders yesterday. Upside to Daniel’s estimated total return of 103p/share in three years stands at 47%.
Half year results came out. If I understood correctly, there were minimal updates. NAV per share is 100.90p , down from 103.21p at the end of 2024. The decrease was primarily driven by “unfavourable foreign exchange rate movements”
ENRG launched the process to start returning cash. Shareholder vote is scheduled for March 18.
https://www.londonstockexchange.com/news-article/ENRG/publication-of-circular-and-notice-of-gm/17477463
@Daniel, thanks for the pitch. With the £450m B Share facility now in place, what is your expected timeline for the initial capital distribution? Additionally, to validate the math: assuming a 90% realization on the H1 2025 NAV of 100.90p, minus the £3m performance fee, are you still targeting a pure capital return of around 90p/share?
I am. If anything, the US terminal has become more valuable with geopolitical developments in LatAm. According to the latest update, they began marketing the Brazilian PV in Q4. The Brazilian hydro and US terminal sales began in Q1 and they’ve also received interest. Since those latter two are the biggest assets, that is positive for a large capital return sooner rather than later. The other assets will take longer to sell by the looks of it.
I’m sticking to a 2028 overall wrap-up.
https://www.londonstockexchange.com/news-article/ENRG/net-asset-value-and-factsheet-replacement/17470340
Any reason for the 10% drop this month?
I think it just got caught up in the current selloff. Final results were released yesterday and it is already bouncing. Headlines are:
US terminal: unsurprisingly interest is described as “strong”
Brazilian hydro: M&A conditions “robust”
UK CCGT-CCR: Inbound interest received
Brazilian PV: inbound interest received
Safe to say things moving at a fair pace here. Construction risk is now minimal at only 10% of NAV and they expect to by able to sell those pre completion.
https://www.londonstockexchange.com/news-article/ENRG/annual-results-for-the-period-ended-31-dec-2025/17509859
NAV per share ended 2025 at 102.28p, slightly above H1 2025 100.90p. We are still far away from actual distributions. No binding deals have been signed, and the marketing timeline is stretching out:
1) The M&A processes for the two largest assets (US Terminal and Brazilian Hydro) only “formally commenced in January 2026”.
2) UK Flexible Power is delayed. It will only be marketed “upon completion of its ramp-up phase… and following transition from the EPC,” which is expected in H1 2026.
3) Iberian/Swedish were pushed all the way to the back. “A formal sale process is expected to commence between late 2026 and early 2027”.
Still no updates on asset sales. Virtually no change to NAV from the previous figure, aside from favorable FX movements.
This statement from management was new – it kind of indicates active discussions are ongoing, but would love to see real progress instead of talks only.
“The Board recognises shareholders’ desire for transparency regarding the ongoing asset realisation process. However, given the commercially sensitive and confidential nature of active discussions, the Company is limited in the detail it can provide at this stage.”
US terminal and 6 Brazilian PV assets both sold over the last few days, for 105% and 92% of NAV respectively, and accounting for around 30% of the portfolio. A return of capital is planned.
Nice progress with both asset sales. But what do you make of the structure of the US terminal sale? The asset is going into a continuation vehicle managed by Victory Hill, with an unnamed US secondaries investor as the lead investor, while additional syndicate funding is still not locked in. Do you see any meaningful execution risk here, or are you comfortable treating this as largely done at this point?
I think it’s largely done in my view, I misread the announcement as being at 105% of NAV, when it is actually (rather misleadingly) at 105% of 2024 NAV including distributions. If the $150m is the reference, sale price is at 90% of NAV, before costs and taxes which aren’t quantified. I think that’s actually a pretty good deal for a buyer, especially given the growth last year. Silver lining is I imagine the 100% realisation performance fee off the table.
NAV/share fell from 103.83p to 98.84p, with most of the decline driven by the reassessment of asset fair values. The company will also not make a Q2 dividend payment, which is probably a result of the US terminal business sale, which was a major cash flow contributor.
ENRG released H1 results.
– The remaining seven Brazilian solar assets are now at an advanced stage, with the company in exclusivity with a Brazilian strategic buyer. Due diligence is ongoing, and completion is expected by year-end, which would effectively finalize the realisation of the Brazilian solar portfolio.
– The US terminal sale is expected to generate ~$117.7m net, after ~$12m of taxes and $4.3m of transaction costs, while the Brazilian hydro facility will carry £11m of taxes.
– Sale processes across the remaining portfolio remain ongoing.
H1 results: https://www.investegate.co.uk/announcement/rns/vh-global-energy-infrastructure-plc–enrg/interim-report-accounts-to-30-june-2026/9764271