TIDMFSF
Foresight Sustain. Forestry Co PLC
14 June 2023
Foresight Sustainable Forestry (FSF)
14/06/2023
Results analysis from Kepler Trust Intelligence
-- Foresight Sustainable Forestry (FSF) has reported its results
for the six months ending 31/03/2023. Despite numerous
macroeconomic headwinds, the trust proved resilient, with its net
asset value (NAV) increasing from GBP180.6m to 186.6m. The trust's
shares also rose by 1.9% over the period.
-- The increase in NAV was mainly driven by revaluations of the
trust's afforestation sites - plots of land that are converted into
forestry. Completion of planting at four sites that had been
acquired by the trust was a key driver of returns. This provides
validation of the argument managers Robert Guest and Richard Kelly
of Foresight Group have made since IPO in November 2021, namely
that converting plots of land into forestry should prove accretive
to NAV.
-- In December, FSF also became the first investment company to
receive the Voluntary Carbon Market designation from the London
Stock Exchange. The VCM accreditation shows that FSF's carbon
credits are subject to high quality oversight and verification.
FSF's Board plan to allow shareholders the choice to either receive
carbon credits from 2030 onwards as in specie dividends to offset
their unavoidable emissions, or to receive an equivalent dividend
in cash.
-- FSF Chair Richard Davidson said: "The long-term demand
outlook for sustainable timber in both the UK and Europe remains
positive and underpinned by the prevailing decarbonisation agenda.
As we embark on the next six months, [FSF] is well positioned to
leverage a range of environmental tailwinds whilst it continues to
deliver on its business objectives."
Kepler View
Foresight Sustainable Forestry (FSF) is the only investment
trust listed today that provides investors with exposure to the
UK's natural capital and sustainable forestry sector. The
Investment Manager, Foresight Group LLP, drives returns by
investing in afforestation projects. This takes relatively lower
grade agricultural land and transforms it into more valuable
forestry once fully planted and the trees are established. Returns
are also generated by investing in and upgrading existing forestry
sites, with the intention of harvesting and selling the timber they
produce, and by tapping into the nascent market for carbon credits,
which afforestation sites generate.
FSF only launched in November 2021 but these latest half-year
performance figures are positive and build on prior results that
suggest the trust's strategy is working. The Company has delivered
a total NAV per Ordinary Share return of 10.6% since IPO and
increased its NAV to GBP186.6 million (30/09/2022: GBP180.6
million) during the period. As noted, a key driver of returns has
been the upward revaluation of land that has been converted into
forestry. So far, these revaluations have been stark. For example,
one FSF site - Mountmill Burn in Scotland - saw a 97% uplift to its
acquisition value when planting was complete.
That uplifts to NAV continued in the most recent half-year
period whilst timber prices were relatively muted also illustrates
the resilience of UK forestry assets to interest rate hikes.
Acquisitions in the sector are not typically reliant on large
amounts of debt, meaning rate hikes are less impactful than on
other property investments. FSF has also traded with lower
volatility and at a premium to NAV for several prolonged periods.
We think this illustrates the trust is relatively resilient to
wider macroeconomic headwinds, such as inflation, as well as
offering strong portfolio diversification benefits, given its low
correlation to other asset classes, like bonds and equities.
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