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To provide a sustainable and attractive long-term dividend by investing in a diversified portfolio of utility scale energy storage projects located in the UK, North America and Western Europe.
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Well, I thought I'd missed my chance to buy in the mid-60s a couple of days ago. But I got an even better one today. Have I made a mistake? I don't know. But I reckon GSF at this price is less risky than the shares I sold to raise the money!
Looks like you made the right call then ali. Unlike me. I bought a few more a couple of days ago thinking the end of the falling was close. It looks like I was wrong. Maybe the end of the BESS story is closer. On the other hand it could be the survival of the fittest and if so Im backing GSF
Doesn't sound like this is for you then alibaba. Thanks for your thoughts though.
Sodium ion batteries have been demonstrated by the chinese at a large scale and at energy densities similar to the new LFP lithium batteries (though lower number of cycles for now, they are close). they will take another 5 years of testing and improvement until they reach the market but they will (as will other battery tech including improvements to LFP chemistry)
Therefore Gore street should be very careful not to over invest in this tech without getting a good return with a relatively short payback - if the payback is too long its possible the battery loses value before its completed payback. I think this is likely in the UK market - though hopefully usa market holds up long enough for a payback.
of course sodium ion and other battery tech will not immediately flood BESS. other companies have also invested a lot in lithium ion and as the BESS get slowly replaced by sodium ion or other tech (starting 5 years from now) - the storage costs will continue to decline - and quite possibly this part is not factored in by Gore street. Even if existing BESS providers wont have more capital to reinvest into sodium ion, new entrants may be taking market share with cheaper technology by that time.
Gore street should be very careful with their capital allocation going forward - like others have mentioned they should consider carefully the current trajectory of spending with a higher hurdle rate due to these risks. Other companies like tesla can afford to have a year or 2 of 0 revenues in BESS since they are diversified, while gore street would have more issues in that case. I would especially say that Gore street needs to seriously review all UK projects in light of potential technical obsolescence, regulatory risks etc - that would likely mean waiting until rates are significantly lower to expand uk storage. In the US given the 30% rebate and higher yield i think it makes sense.
there are some positives too however, the grids will need a huge amount of storage over the coming years and if the UK or other markets get saturated, it should self balance since a reduction of supply should follow.
Overall the risks are not fully considered in the analysis by gore street - they have no sensitivty analysis to battery life (or battery tech life), they have not completed their NAV sensitivity analysis in an honest manner (why is the low case for revenue not actually the low case on p 33 annual report). they also use peer revenue curves for their assumptions/calculations, i would have thought that they looked into this themselves and would have their own view/analysis. Finally the discount rate is too low given the risks above - many companies are looking to generate 15% on equity to account for the risks in their business. applying a 15% to GSF would reduce nav around 50% to 55p which is where i guess the SP is going.
Also annual report page 33 , Stony was meant to be energised end of July and ended up being energised much later in Nov
Have a good read of all the info on the company's website.
You will find an awful lot of info, e.g. Lithium ion batteries guaranteed by suppliers for 15years. The company is battery tech agnostic etc, the way NG selects peak suppliers etc etc.
jr
GSF equity holders are absolutely exposed to the risks set out in your second paragraph. Those risks (& others!) are the basis of the returns equity holders are looking for. The statement in your first para suggesting that returns are capped at 10% minus inflation is fundamentally incorrect though.
Thanks for the information, i did figure that (though as you say they depreciate the NAV). however we do have no visibiity on any of the projected cashflows, depreciations etc. if they are adding up all the expected revenues over the life of the batteries (accounting for revenue curves) and discounting by 10% then i guess thats fair - however it does mean that buying at the NAV effectively caps your return at 10% minus inflation.
some risks which are not even visible also include technical obsolescence, battery lifetime variability, weather events distrupting operation and greater variability in the revenue curves (given that they must be projected out to the lifetime of the batteries which must come with a big risk margin).
given that we have none of the information above - neither the DCF analysis with expected cashflows and retired batteries, nor do we have a serious risk analysis out to past 5 years, then its no wonder its trading at a significant discount to the NAV
The subject of depreciation just came up on the UKW board too, and I made a (sort of) similar point to SB's here.
@alibaba42 - battery storage systems aren't recorded on GSF's balance sheet as fixed assets requiring depreciation over time in the manner you propose. This is an outcome of the way in which GSF prepares its financial statements, see note 17 in the 2023 Annual Report. GSF's reported assets are its investments in the projects it is involved in, valued on the basis of the future cashflows they will generate. If batteries or other system components have to be replaced after a certain time, provision will be made in the relevant cashflow projections. You won't ever see this depreciation - or the "book value" of the system assets shown in the way you envisage.
Where depreciation is referenced in the NAV bridge illustrations, it isn't the cost-based depreciation you are used to from the balance sheets of "ordinary" companies.
This is a (very!) complicated topic, but there's no reason to suggest that anything is missing or needs to be called out as such.
Why has the fund and no one else ever mentioned depreciation of their assets? the NAV calculations never mention this. How can a battery storage system not depreciate when it has a useful working life of 15 years or perhaps 20 at the most? if GORE street has a NAV of 480 million (lets assume once it is all built out) - it will depreciate by over 20 million a year. the depreciation was shown in the annual report FY ending MAR 2023, however in the half year report ending sept 2023 it is missing from the updated NAV! how is this inconsistency not called out
"EDF Selected to Optimise 80MW BESS Asset for Gore Street Energy Storage Fund" ...... 60p target is my prediction ... started to buy in at 70p.
Clearly some can't tell the difference between wind farm and BESS.
This company will more than double its mw capacity this year.
We ALWAYS had standby gas generators to help troughs, this is now in battery form.
LOL buying as many as I can afford.
jr
Jeeez - GRID and HEIT both way down. Looks like the bet on the GB market didn't play off as well as they'd like.
GSF proving diversification is the winner, looking forward to the next update. Historically Ireland has been the breadwinner in final quarter. Based on the weather outlook and recent storms - can see it being a positive end!
Bear raid .... but underlying message seems to be in terms of BESS .... the UK in taking back control doesn't know the difference between the part of its anatomy that it sits on, from the other part resting on the table looking onwards with face held on clasped hands into the abyss. GLA. ;)
I was fortunate enough to buy in the mid-60s during the last dip. I bought a double-size holding, as it seemed like a great opportunity. Then I took profits in the mid-80s, selling half, planning to hold the rest for the long term. Now it looks like it's nearly time to double up again and repeat!
That said, back then the whole stock market was down, especially "interest rate sensitive" stocks. It's a bit worrying that GSF (and battery stocks generally, I think) are down again when the rest of the market is holding up.
Is it Christmas? I’ve added here this morning, buying at close to a 12% yield.
My analysis is that GSF has sufficient cash to sustain its dividend AND to fund the established projects that will add materially to revenue generation in the next couple of years.
The company has greater revenue diversification than its peers, and that diversification is meaningful both today and in the longer term.
Sometimes you have to be brave, and don the kevlar gloves of courage when others are selling…
Good man. Ive been trying to find a reason for the slump for the past 3 feckin years and all I can find is reasons why it shouldnt have. Maybe I should do like Mr Buffet and think in terms of 20 year periods. Lets see how far we go tomorrow - is 62 the ATL to date? Hope their batteries dont lose their charge quite as fast.
Even if they cut the divi to 5p that would still yield around 7% on today's price,and the best interest rates are now around 5% .Other than that i am trying to find reasons for the continual slump.
It should be noted that GSF is down c40% over the last 12 months whilst GRID is down c60%. It's not so long ago that people were bemoaning the poor performance of GSF relative to GRID and selling GSF to buy GRID; so things could be worse ;-)
At this juncture, I would only expect a dividend cut to be driven a fall in NAV and, for the time being, the current dividend of 7.5ppa looks just about safe IMHO.
I added a few the other day at just over 71, obviously far to early. I’ll hang fire but will certainly be adding again if this continues. Long term dividend hold.
I thought the bottom had been established at 60 having bought at just under 67 broomtree, so I'm now concerned that we may revisit the low. Yield over 10% at these levels though, even assuming 7.5p dividend. I'll have to look at buying more if sp falls below 65 again.
They state ‘improving dividend cover’ and with what is due to come online that would be expected. I think a 14 million share issue at NAV has to be a vote of confidence and with revenue increasing and NAV holding up; we have to hope the SP will right itself. Still looking to add but want to wait and see a bottom put in first
GSF’s will be the least at risk in the sector because of international diversification. I will take a “drains up” look at this topic during the week.
That's what I thought that overseas operations would enable dividend to be maintained with more assets coming online ...
... although having quickly read their update on 10th Jan it appears that overseas operations are performing well.