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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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Seems to have done the trick too, for now at least. Must admit I wasn't expecting that this morning. Fingers crossed for a steady rise from here.
Agreed. It quite clearly says “no problems over here”.
They have come out fighting! LOL!
Good for them and us. They did not need to issue this RNS, it underlines their confidence.
jr
“Gore Street Energy Storage Fund plc ("the Company" or "GSF") notes the turbulence in the market and reconfirms its strong liquidity and its commitment to the current dividend policy. The Company also reconfirms its commitment to a diversification strategy, which has insulated it from the current dynamics of the GB market.”
Some quite punchy language used, particularly with respect to competitors. As per discussion here, GSF’s roll-out programme and international diversification are favourable to cash generation.
Agree. NAV here is a bit of a mirage, and therefore so is the apparent ‘discount’. Similarly, regard this as a yield play and once there is evidence that can be sustained, and ultimately increased, the capital value will respond. On that basis, I am acquiring in a slow and steady fashion on a >10% yield.
@Krustysmegma - analysis/discussion of this sector is overly dominated by consideration of NAVs, which are not in any way comparable to the NAVs familiar to investors from traditional investment trusts. They shouldn’t really have the same name. I don’t think that the “discount” calculated by comparing the so-called NAV to the traded price is particularly useful/relevant as a result.
What matters more is the ability of the funds to generate and sustain the free cashflow needed to cover their dividends. If they can achieve this then they can be valued by reference to their yields, relative to prevailing rates. GSF today offers a yield of over 11% which I see (ymmv….) as a good rate of return for the risks involved.
GSF needs to bring online the additional capacity it is working on, and show investors that it is generating the free cashflow to properly support its dividends.
If in time we get to a world of 3% inflation and 4% rates then the real yields from GSF will be extremely attractive. It would be reasonable to expect capital appreciation as a result. I’ve built a holding here in recent months on this basis.
SB,
If you look at the GSF website (and grid etc), you will find that National Grid, the uk network, still uses and (and prefers?) gas fired generators for peak lopping.
The whole set up in UK is way behind.
One day they will catch up but may be too late for some.
jr
Fascinating investigative piece today by Bloomberg. Link underneath excerpt below, but I think paywalled (sorry).
Here’s perhaps the interesting part for GSF holders:
“Thousands of giant white turbines straddle the lush peat-carpeted hills of the Scottish Highlands and Border regions. Given their dimensions — typically taller than Big Ben, with three long blades that rhythmically scythe the air — they are mostly built in remote areas, where land is cheaper and planning restrictions looser. Most are in Scotland, which offers some of the windiest conditions in Europe.
Their output largely flows to population centers in England — but the system often can’t cope with the power surges that occur amid high winds.
This wasn’t much of a problem in 2008, when wind generation accounted for less than 2% of British electricity. But wind power has ballooned — in December it accounted for more than 40% — and the UK has lagged in expanding its grid to handle the extra load.
Each wind farm files daily estimates of the power it plans to generate. When these indicate there will be too much wind power, the network operator intervenes and pays generators in the north to switch off. It’s a policy meant to incentivize energy firms to build wind turbines without having to worry about losing revenues when the grid can’t handle all the energy..“
If only there was a technology effective at balancing out periods of over- and under- production…? How helpful would that be in maintaining effective capacity and a functioning grid?
https://www.bloomberg.com/graphics/2024-uk-wind-farms-overstate-output/?srnd=premium-uk&leadSource=uverify%20wall
And it was not me!
jr
5m+ is a lot for this share. Some people who are clued up have taken advantage of the chance..
jr
An extract from the Sep23 HY report:
"Q: You’ve spoken about diversification, but does it work?
For a largely merchant asset-class like energy storage, diversification is a fundamental necessity to reduce revenue volatility. Within Great Britain, opportunities to diversify are limited due to uniform revenue streams and consistent wholesale electricity prices across all regions. This uniformity results in significant fluctuations in revenue year on year. Seasonal variation also creates large fluctuations in quarterly revenue, with Spring and Summer historically yielding higher revenues compared to the Fall and Winter seasons.
The Company has always factored these revenue variations into its decision making, which is why international diversification has been a key strategic objective. Today, it is unique in holding assets across five distinct and uncorrelated energy systems. This enables the Company to navigate the challenges posed by individual market fluctuations by accruing more stable and reliable revenue generation throughout the year from multiple markets. This can be seen in the Company’s revenue over this reporting period, when revenue from its GB fleet was £7.54 per MW/hr, compared with £15.10 per MW/hr on a consolidated portfolio basis, representing c.2x vs a GB-only portfolio."
Morning Krusty, lol yes, thought I have missed the boat, but here it is. GSF is back to where it was. Well, this is stock market. You can't take anything for granted, I am afraid.
I hope that you are keeping well my friend. Sorry for you are back to the old misery again. GSF's SP has fallen back so much. I hope this is only temporary, and it will bounce back up soon.
So, good luck to you and to all faithful holders here.🤞🤞🤞
Bet you're glad you got out when you did sidi!! Are you tempted back at these levels? As you can see from StarBright's summary below, the UK accounts for less than 20% of GSF's revenue, so should be much more resilient in terms of maintaining the dividend that GRID has proven to be. I'll be buying more if this drops below 65p.
StarBright, interesting point about the NAV and dividend payments. I'm a long-term holder of TW and they have recently changed their dividend policy in a similar way (they're committed to paying shareholders 7.5% of NAV p.a. by way of dividends). I can't help but agree with you, it would seem to make much more sense (to me) for companies to pay dividends from free cash flow rather than the NAV, which may be at a discount or premium for reasons outside the company's control.
Re the 8p dividend, I think I'm right in saying the metric for this is based on an average of the previous year, so in effect it will lag the NAV increase by 12 months. I therefore still expect a dividend of 7.5p in the current year, hopefully increasing to 8p in 2025.
T_o_D thanks for the heads-up, I neither hold nor follow GRID having looked in depth at their business model so it's useful to get some context for this morning's fall.
Thanks to GSF that they have not put all their eggs in one basket, and that's reason why its SP is not falling as much as GRID and HEIT. The two have fallen 16.55% and 19.5% respectively.
Yup.
GSF revenue generation in the 6m to 30 September 2023:
UK £3.6m (19%)
Ireland £9.7m (50%)
Germany £0.8m (4%)
Texas £5.1m (27%)
Total £19.2m (100%)
GRID, another battery storage co has stopped its dividend as its market deteriorates, expecting recovery by end of year. Whether and how GSF is similarly affected will, I suppose, depend on individual contracts. So - risk of divi vanishing for a bit but longer term improvements???
The problems in the sector are outlined by GRID that pulled its dividend this morning - namely the reliance on gas in the UK in balancing energy demand. That much is also obvious from the low revenue returns attributed to the UK.
To its advantage, GSF grabs revenues from outside the UK … and will no doubt look to expand while the UK sorts itself out.
I've been adding too.
Also looking at the pipeline of assets scheduled to be completed and energised over the next year. It's very easy to see how the additional capacity will benefit what the company calls "Operational EBITDA", which I view as a proxy for free cashflow. If they can deliver on the projects then the dividend should be very well covered in cashflow terms by the end of this year, thus removing one of the popular "strikes" against the company.
I don't understand why they express a dividend target in terms of an NAV%, rather than in terms of cashflow generation. When rates start to be reduced it seems likely that the company will amend its discount rates. This will result in an increased NAV - perhaps exceeding the £1.15 required for an 8p divi rate. But it won't have much impact upon cash generation unlike the addition of capacity, which will. Perhaps - with additional capacity on the horizon - the company should reconsider the way in which it expresses its dividend aspirations, tying them more closely with cashflow generation? Or is there some aspect of this that I haven't understood?
This is quite a difficult business to analyse / model as a result of complexity in industry technical terminology, but also because of the way in which its financial reporting is constructed - see questions here this week. I think there is a "complexity discount" as a result, and wonder whether the company can do more to explain how it works to investors..?
I've built quite a substantial (for me!) holding here at an average below 70p. With an 8p dividend that's a yield >11% with many potential triggers for capital appreciation:
- further dividend increases as new capacity comes online
- NAV re-mark as the "risk-free rate" component of the their discount rate(s) fall
- a "price discovery" sale of an asset anywhere near NAV
- an opportunistic takeover by a trade or PE buyer
The realised volatility of the shares seems way out of kilter with the underlying steadiness of the asset, and the asset class itself. At some point I expect this volatility will diminish. It's a very interesting investment - my plan is to hold for the long term.
I dont think its tthe end of the BESS story, or even that Gore street is going to fail, i just think there are risks we should be paid for and this price is probably a good price to buy, ideally i would like to buy at 60
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