Member Info for StarBright

1000-1

My bad....

100-1....!

From GSF's 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."

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."

I agree that the difference re GSF is revenue diversification. The UK "market" has been v difficult for BESS in the last year. Exposure elsewhere has paid off in revenue generation - and therefore cashflow - terms.

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%)

Dividend (2023=7pps) on 495m shares is £34.6m

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%)

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.

90p being paid now. A nice move up.

10.4bn of trades printed (probably some late prints to add to this today).

3.4bn shares in issue.

Extraordinary figures by any standards. The stuff that market maker dreams are made of.

I’d give the Horrible Hall a miss this evening. Might be some lairy lads kicking off….

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.

@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.

The notion that institutional investors are involved here - particularly that they are buying “behind the door” - is for the birds.

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…

If everyone keeps buying and selling the shares to each other at higher and higher prices, then everyone makes money right?

That is how this works isn’t it?

Looking at the language used in the trading update, and the decision last summer to marginally increase the interim, I think that management fully understand the importance of the dividend. I don’t see anything to suggest that they have pet capital projects to pursue at its expense for example.

The starting point in terms of dividend cover is quite strong, as is cash availability.

So whilst some of the ratios (particularly dividend cover and FCF/dividend) will take a hit, I think they’ll hold their nerve through 2024 at least.

I offer no opinion on the prospects for this company and its shares, but this discussion board is a rogues gallery of LSE’s most notorious mountebanks and pumpers... Even Degsy has his shoulder to the wheel..!

This discussion board is somewhat overly-fascinated by these conferences - of which there are many. With a project of the inherent scale and complexity of Zanaga, I see little likelihood that anything will be finalised at a conference. Or that news flow will be manipulated such that an announcement can be made at a conference. In any case, share price material news will be delivered first by RNS.

I know the rampier members of the board enjoy having a date/deadline against which to build a call-for-action, but my view is that rational investors shouldn’t get overly excited that any particular conference is likely to herald an inflection point. News will arrive out of the blue at some point.

V happy to be proved wrong! But many of these much-hyped-here events have come and gone over the years…

This discussion board seems somewhat over-invested in the notion that conferences are important events from the perspective of investors. That announcements material to the share price will be made at them.

In reality this is highly unlikely.

How many times does the Hurstbot flag upcoming conferences, including the annual boondoggles run by investment banks? How important have these proved to be?

And who recalls Avacta’s most explosive ramper battering away for weeks about the “Jawdrop” conference last year? The one that even a cursory read of the program revealed was run by a local council to promote their shiny new multi-use commercial property?

Quoted company investors should pay only passing attention to these events. Anything material will be released in RNS format ahead of any conference presentation etc.

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.

To clear up questions in this thread on AISC composition, tax rates, tax losses, PE multiple calculations etc.

The AISC quoted by GGP for Havieron in the PFS was constructed in line with industry practice. As such it doesn’t include:

1. Corporate taxes, which will apply at 30ish% once GGP has made enough profit to use up its accumulated tax losses [USD75m per last accounts]

2. Financing costs, USD15m - USD20m pa at current BBSW+margin if the existing facilities are drawn

PE multiples can only be applied AFTER these tax and financing costs are included in the calculation of earnings.