Key points
- More investors are moving from ‘dirty’ fuels to renewable energy
- Stocks in this sector are rapidly expanding their portfolios
- Wind and solar energy can provide diversity
Renewable energy stocks are going to play a big role in the global production of energy for decades to come. Many investors are now turning away from ‘dirty’ fuels, like oil and gas. I want to know how I can gain exposure to cleaner forms of energy. These include wind and solar power. There appear to be some excellent stocks available on the market. Let’s take a closer look at two of these companies.
Turbines to power the future
The first stock is Greencoat UK Wind (LSE: UKW), listed on the FTSE 250. As an investment vehicle, it provides investors with exposure to about 40 wind farms. These wind farms are scattered across the UK.
Yearly profits before tax have increased to £105m in the 2020 calendar year, from £59.95m in 2016. This growth is partially reflected in the share price. Since January 2016, the price of shares in the company has increased nearly 20%. This is not heart-stopping by any means, but it is consistent.
On the other hand, the earnings-per-share (EPS) data tells a different story. Over the calendar years 2016 to 2020, EPS is down 38%. This is in part due to the issue of shares over the period. Greencoat UK Wind has undertaken share issues to fund the purchase of stakes in new wind farms and to pay down revolving credit facilities. In November 2021, for instance, the company raised £450m. Demand for these new shares massively outweighed supply, showing that renewable energy is a popular segment of the market.
The latest share price is currently trading 9.7% above the value of the company’s holdings, called the net asset value (NAV). This means that the share price is slightly expensive and I would therefore pay a premium when buying shares in this company.
Renewables Infrastructure Group
The other company I’m interested in is Renewables Infrastructure Group (LSE: TRIG). Also listed on the FTSE 250, this company is a similar investment vehicle to Greencoat UK Wind. With holdings in over 70 wind, solar, and battery storage facilities, Renewables Infrastructure Group has a strong presence across Western Europe and Scandinavia.
Like many other companies in the renewables sector, it has been fundraising through the issue of shares. The most recent share issue, in September 2021, amounted to £200m and was massively oversubscribed. In the same month, the company acquired four solar sites near Cadiz, Spain. The acquisition will further diversify this stock’s investments.
Similar to Greencoat UK Wind, however, EPS data does not make happy reading for investors. For the calendar years 2016 to 2020, EPS is down 32.4%. This can again be partially explained by the numerous share issues over the years and therefore may not be as bad in reality as it appears on paper. Indeed, the share price is trading at a 16% premium to the NAV.
These two stocks are gearing up for the future. While the EPS data and premiums may be off-putting, I believe that there is such exciting growth potential for these renewables companies and the broader sector. I will be buying both of these stocks now for a diverse renewables portfolio.
Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended Greencoat UK Wind. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
