I’ve believed for a while that John Laing Environmental Assets Group (LSE: JLEN)looks like a potentially stable investment opportunity in a growing sector. The firm’s portfolio is full of investments in assets such as onshore wind power generation, photovoltaic solar power generation, and waste and wastewater processing projects in the UK and France.
When I last wrote about the firm in June last year, it planned to raise £40m or so from a placing of new shares to pay down debt and to make new investments. The placing went ahead the following month and it was “significantly oversubscribed”. Since then, the firm has made around six acquisition announcements, mostly regarding anaerobic digestion plants, as well as a wind farm in Wales. The investments the firm made cost much more than the £40m raised and were financed with debt too.
Shares in demand
However, JLEN raised another £15.5m in a placing in March and aimed for another £50m capital raising event in October, which ended up being oversubscribed again. So the company raised the stakes and pushed the limit higher in the October share placing, eventually raising £105m. Even then the placing was oversubscribed, so it seems there is plenty of investor appetite for shares in the company and for the sector it operates in. Happily, JLEN was able to use all the money raised to completely pay off all its debt, so the balance sheet is strong.
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In today’s half-year results report, the company said its net asset value is a smidgen over 100p per share, which compares well to the current share price close to 105p, suggesting the stock market is assigning the firm a reasonable valuation. The projected dividend yield for the trading year to March 2020 is a tempting-looking 6.3% or so.
The company arrived on the stock market with its initial public offering in March 2014 and has been building up its portfolio of investments at a fast pace. There were three acquisitions in the first half of the year worth a little over £54m, which raised the total number of investments to 27 with a renewable energy generating capacity of 274.2 Mega-Watts (MW). The entire portfolio was recently valued at £488.9m, which compares to the firm’s market capitalisation of around £527m.
Further growth potential
The valuation is close to asset value, but the firm is also producing revenue and profits from its assets. The directors said in the report that electricity generation from the solar portfolio was 2% ahead of budget in the period and generation across the anaerobic digestion portfolio was 4% above budget. However, the wind portfolio didn’t fare as well and generation came in 12% below budget “due to very low wind speeds during the period.” Let’s hope that the projected wind speeds weren’t over-hyped in the selling process when JLEN invested in the assets. Time will tell. Meanwhile, performance at the company’s environmental processing plants was in “line with expectations”.
Looking forward, JLEN said its Vulcan anaerobic digestion upgrade project is under way and is expected to double the capacity of the asset. There is also a “strong pipeline” of potential acquisitions for further growth. I continue to believe that JLEN looks like an overlooked gem and the dividend yield is tempting.
