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Investment Trust Newsletter

Date: October 2018

Published by: Investment Trust Newsletter

Written by: Andrew McHattie 



(BSIF, 122p)

We have written about Bluefield Solar Income a few times in the

newsletter, highlighting its 6%-plus dividend yield, reliability, and

well-managed risks. After the fund’s final results for 2018, which

most importantly confirmed the year’s total dividends at 7.43p per

share, we spoke to Bluefield Partners’ managing director James

Armstrong about the outlook.

These results marked the fund’s fifth year

of operation since its IPO in July 2013, since

when the shareholder total return has

been over 50%, something of which James

is justifiably proud. He says the fund has

exceeded its targets over these five years, in

spite of falling power prices, providing steady

returns to investors that are uncorrelated

with movements in the stockmarket. That

last point is important if you are looking

for diversification away from equity funds

– Bluefield Solar derives its income from

UK solar photovoltaic assets, with 60% of

revenue in the form of regulated flows. It

owns and operates solar farms across the

UK, from Trethosa in Cornwall to Kellingley

in Yorkshire.

James stresses that this is “an income

product” – he does not want to become

obsessed with the net asset value (113.3p at

the end of June) – he wants to position the

fund as a very defensive, very predictable

income producer that simply provides a good

sterling yield to shareholders. Based on the

target dividend of 7.68p per share for 2019,

the prospective dividend yield is 6.3%, which

we think is very attractive.

Much of the fund’s revenue for next year is

already locked in, thanks to fixed contracts

that are already signed for power supply.

Ironically enough, at a time when the trust’s

assumptions (used to calculate the NAV) have

been heading lower for long-term power

prices, there has been a spike in short-term

prices that is beneficial for revenue. From

around £45/MWh of energy earlier this

year, power purchase agreement prices are

closer to £57/MWh now. Another potential

windfall has been the sudden termination

by the EU of a minimum import price for

Chinese solar modules, effective as of last

month, meaning a fall in the cost of new

installations. James sees the solar market

moving towards economic unsubsidised

projects, and whilst virtually no new solar

capacity is currently being built in the UK,

he thinks the trust will have expansion

opportunities again in the future.

For now it is simply business as usual

for Bluefield, delivering power to the UK

network and growing dividends to its

shareholders. For non-correlated income

from a quality operator, we think BSIF is a

solid defensive holding.