The news on the wires today is that John Laing Environmental Assets Group Ltd (LSE: JLEN) proposes to raise up to £40m from a placing of new shares.
The directors want to use the net proceeds to repay the firm’s credit facility and allow investment in “a near-term pipeline of attractive opportunities across Wind, Biomass and Anaerobic Digestion.”
The right place at the right time
I think the news is encouraging because it means the directors see opportunities to grow the company, which implies the sector is attractive. The firm operates as an environmental infrastructure investment fund with a stated aim of providing shareholders with a sustainable dividend paid quarterly that increases in line with inflation. Cash flows not required for dividend payments will be reinvested to “preserve the capital value of the portfolio.”
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To me, JLEN looks like a potentially stable investment opportunity operating in the right place at the right time. The firm’s portfolio is stuffed with onshore wind, PV solar, and waste and wastewater processing projects in the UK and France. That’s a sector with a tailwind, I reckon, and the directors point out that wind and solar projects benefit from the British and French governments’ commitment to support low‑carbon electricity targets. Meanwhile, waste and wastewater processing projects benefit from long‑term contracts backed by the UK government.
The timing could be right
If it goes ahead, the placing should complete during July, so ‘right now’ could be a good time to take a position in the share. A placing will dilute your percentage share of the overall company if you hold the shares before it happens, of course, but you will end up with a smaller portion of a larger enterprise. There is a good chance that the positive signal the placing news sends to the market about the firm’s growth potential could cause the shares to drift up. After all, forward prospects are arguably improving.
Today’s share price of 108p puts the firm on a price-to-earnings ratio of 11.6 with the dividend yielding 4.3%. The firm arrived on the stock market during 2014 and is still building up its asset base. But during 2016 – the third year of trading since the IPO – the firm delivered what the directors describe as a “satisfactory” operational performance as electricity prices improved and wind conditions varied.
A defensive sector
Last year, the firm invested £53.9m in four acquisitions and ended the period with 19 operational projects. This proposed placing will enable the firm to invest in more of what looks like a good thing. The sector is defensive and I’m optimistic that JLEN’s assets will be capable of delivering strong, reliable cash flow that is resilient to the effects of ongoing macroeconomic cycles.
I reckon an investment here could lead to a reliable and growing dividend stream and gentle, stable capital appreciation in the years to come.
