Gresham House Energy Sto... Share Discussion Threads

[marktime1231] 06/4/2022 12:03

catch ... they also have a £200M loan accordian to pay for the part of the pipeline which is not yet in development, plus room for some investments as yet unknown, and stress that they are trying to balance share issue dilution with gearing. But yes, within a year or so I would expect another big fund raise, one way or another, to accelerate expansion. Eyeing up solar+battery ventures in the US or Australia perhaps.

[marktime1231] 06/4/2022 11:58

Tremendous NAV progress and prospect. The guidance to 145p NAV per share by mid 2022 is phenomenal.

A rather cautious attitude to the dividend to be held at 7p despite that level already 1.32 x covered by income and despite the expanding operation and despite large sums of cash not yet deployed. I don't mind the caution, but it would be helpful to have an idea of how much better things have to get before they consider dividend progression. There may be headwinds of changing revenue mix and loan interest to pay perhaps. But at the very least let us know what we can look forward to, frame the terms eg a target payout of 75% net income or a 5% y-on-y progression, rather than a vague tease that you have things in mind.

As an income investor I am more interested in the latter than the former. The manager (who is paid a fee based on NAV) is still tilted towards asset development, where it is excelling, rather than income (very good) and investor returns (stagnant). A minor quibble, but this news today is rather better for them than us.

The strategic shift to earlier stage investment, bypassing the inhouse GHAM which was a bit of a conflict of interests, is welcome since GRID will retain more of the benefit of value creation. The shift to international markets including the US, and to mixed solar+battery to a limited extent, is also welcome. Not enough said in the strategy about longer duration storage which GRID notes is becoming increasingly important.

Well done GRID. More focus on income progress please and thank you.

[hiddendepths] 06/4/2022 11:04

A succession of equity fund raises has long been inevitable as the company expands in a rapidly growing market. I'm glad they use debt too but there's scope for NAV per share to keep going up in any event.

I have previously wondered if the business model would also work in other countries. It's now clear that there are international ambitions. In the wake of Russia's invasion there will be massive expansion of wind and solar power across much of Europe. This will create incredible opportunities for battery farms, even those without any chickens!

[catch007] 06/4/2022 10:25

The line below from the results indicates a future fund raise is a certainty. GSF currently have a subscription under way and I suspect GRID can generate high level funding based on its trading performance and prospects.

'2021 has been another year of growth focused on value creation. We have eight projects in construction and further projects set to enter construction. This will deploy all existing equity funds as well as the existing debt facility'

[jonwig] 06/4/2022 08:24

sawney - I think future fundraisings are a given, not particularly implied by your quoted passage.

What that says is they are more confident now of acquiring good early stage assets and managing the risks. They come cheaper and have a higher discount rate, but when operational, that falls, with a boost to NAV.

[hiddendepths] 06/4/2022 07:47

Yes podgyted, I had copied that too and was about to post it here.

Also "GRID will aim to balance future dividend targets with increases in Operational Dividend Cover"

Weirdly, this has all the attributes of a growth stock rather than a high yield NAV-restricted investment trust!

[nerja] 06/4/2022 07:44

Taking these statements together, the Investment Manager currently expects NAV per share to increase to at least 124p by 31 March 2022 and in the range of 140-145p by 30 June 20222
That explains the recent jump, some bassa knew this ahead of it.

[podgyted] 06/4/2022 07:42

I was more interested in this:-

"Taking these statements together, the Investment Manager currently expects NAV per share to increase to at least 124p by 31 March 2022 and in the range of 140-145p by 30 June 2022 (2) . "

[sawney] 06/4/2022 07:31

Does anyone see this a possible fundraising event..??

The Company intends to seek all relevant approvals (from shareholders and lenders) for certain changes to its investment policy. As such, the Company intends to issue a Circular during April. The principal proposed amendments are as follows:

- To invest up to 10% of GAV 3 in shovel-ready project rights which is expected to:

o Simplify and accelerate acquisition processes

o Reduce the total acquisition cost by a further 5-10%

o Eliminate related party transactions with the Gresham House group

o Facilitate the option of a premium listing on the Main Market of the London Stock Exchange

- To invest up to 30% of GAV 3 in certain international markets 4 replacing the existing ability to invest up to 10% of GAV in Ireland which is expected to:

o Increase EBITDA and NAV growth over time by exporting core competencies including scale advantages, business model and operational capabilities to international markets

o Diversify into major OECD markets with similarities to the UK in terms of wholesale market structure, renewables growth and penetration where the market is often at an early stage resulting in stronger target returns compared with the UK

- To invest in the land under new or existing projects which is expected to:

o Significantly increase the duration of a project

o Increase asset backing while eliminating an index-linked cost

[nimbo1] 04/4/2022 11:58

Does anyone know why grid has performed so much better than gore street energy? Im asking because Im applying for shares in the GSF open offer and therefore wondered why. Used to own this - sold at 118p from memory - so a bad decision there.

[hiddendepths] 03/4/2022 08:40

"Inflation protected income" - quite so. Also growth potential even if there's a major recession, which seems pretty much nailed on now. One of the best ports in the storm that's heading straight for us imo!

[hpcg] 01/4/2022 12:02

Big breakout on the chart, though one presumes upside is limited. I have tended not worry about the share price as I purchased for inflation protected income, but it certainly is pleasant.

[marktime1231] 31/3/2022 18:27

Rather strong share price progress today, anticipating exciting results on 6 April which is much sooner than I was expecting. We know at least +5p on NAV. GRID looking so much more compelling than GSF, hats off to Gresham House management.

Even though we don't strictly need it I wonder if the board are considering another fund raising issue if the share price hits a certain level, it would be a shame to pass up the opportunity for even more exciting growth.

[marktime1231] 29/3/2022 17:01

GSF fund raising £75M with an issue of 68 million shares a 17% dilution at a slight discount to SP, a small premium to NAV. Could double that if there is demand. And says it intends to issue a total of 750 million new shares to invest in its expansion plan. But which seems smaller and slower than GRIDs plan.

GRID I think already has the funding / loan availability to fund its existing expansion programme (*) for the the next 18 months or so, and most recently has preferred to gear rather than dilute shares. May well return to the market to accelerate development, but not any time soon?

(*) Just fact checking myself. In Jan 2022 GRID said it had 425MW operational, 415MW in construction with target completion in 2022, 437MW in the plan for H2 2023 allowing for some delays, and a further pipeline of 280MW through 2024. I am struggling to be confident to what extent that pipleine is funded because they did not say explicitly ... the Sep 2021 £150M capex loan deal has an accordian expansion of another £200M and was said to fully cover the known pipeline as at July 2021; so let's assume that all the above expansion is already funded or could be funded by extending the loan without need for further share issue. All good.

[marktime1231] 25/3/2022 15:27

Increasing our hydro capacity, including pumped, is an expensive no-brainer. The investment cost and very long payback means funding is an issue, but if you have deep pockets or the interest of people like the pension funds, and a government-backed CfD or take-off price agreement, well it has to be part of the answer to energy security.

SSE have had a 1.5GW project at Coire Glas with ministerial approval for 18 months, actually it has been in planning for a decade, but infuriatingly no movement. Waiting for government support to take the risk down?

Not aware of the strength of the Cruachan pumped-storage plan, which I think intends to double existing capacity to 1GW. If it is viable it is also a no-brainer, but I understand this has again been at the feasibility stage for over 6 years.

All it takes is government support to get these schemes moving so what is stopping us?

[frederickbloggs] 25/3/2022 15:09

Apparently there's a project to double the generating capacity at Cruachan. A very welcome development. I think Drax own it these days.

[jonwig] 25/3/2022 12:46

marktime - nuclear fusion? (Para 5.)

Have you examined the Cruachan Dam as a storage project?

[marktime1231] 25/3/2022 12:19

Actually I disagree. Take big players like SSE, BP and National Grid. They are investing in new multi-GW grid scale energy projects over an extended horizon, they are not buying into existing operations. The economics of buying mature assets versus building your own. (There are exceptions ... SSE has taken small stakes in onshore wind, solar and battery storage businesses, but that is peripheral to the big picture).

The buffoon said in response to a question yesterday at the NATO meeting about energy security that Britain was pushing expansion in wind power where it is set to regain the world leader crown at "zero marginal cost". I think he means when the wind blows stronger than base-plan you get electricity for nothing. But he still has not worked out that wind power only provides security if: a) you build massive over-capacity, eg 3x what you need as base-load; b) you build the grid connections, long duration and seasonal storage capacity to go with it. Those things come at a cost. He has not worked things through beyond the headline.

Or maybe he has, setting us on a path where we build peak capacity offering 2-3 x the base-load generation we need, so 40-60GW wind + 20-30GW solar. We export the surplus and import some when we have a shortfall, although that is not real security. We already import typically up to 5GW and on one occasion recently we were briefly a net exporter. Except you still need a minimum base-load generating capability of 20GW or so like last night when it was dark and still ... but right now other than gas and coal we have a declining 5-7GW contribution from nuclear plus bits and pieces.

1-2hr energy storage to balance the grid from day to day like GRID does not solve this puzzle. (But yes we will need to add several GW of energy storage to do that job.) True energy security needs a way to store huge reserves of energy. In hydrogen perhaps. Or by using surplus power to capture carbon we absolve ourselves and can continue burning fossil fuels to provide base-load security when the wind does not blow and the sun does not shine. Or smart-connect every house-and-car with built in batteries and use them like a massive distributed storage network. That still only gives us cover for a few hours. Not season to season.

We have nuclear fission (edit - I mean fusion!) to look forward to, but probably not in my life time.

[spangle93] 25/3/2022 09:20

You're adding a hypothetical question onto a hypothetical situation, jonwig :-) As well as making it only GRID.

A buyer will pay the least they believe they can to achieve their objectives

[jonwig] 25/3/2022 08:56

So, Spangle, the NAV of GRID at 31/12 is likely to be around 115p. How much would a buyer be willing to pay?

Anything under 131p would be rejected by GRID's shareholders. Anything over 115p would be a poor deal for the buyer.

[spangle93] 25/3/2022 08:43

Indeed HD.

If a big company decided it wanted to be in this business area, it wouldn't start by acquiring technology, sourcing sites, placing orders.... It would just buy an existing player.

[hiddendepths] 24/3/2022 23:36

I am aware of that jonwig. I have holdings in several of these companies and know the argument. But the projects don't need to die. They can be refreshed with replacement batteries for a start. In any event, as the technology continues to improve, the replacements will be cheaper and more efficient so hopefully the margins will actually rise. I think that first mover advantage and the 35% market share will be highly advantageous in the massive growth that's inevitable in the next decade and beyond. That growth does make this sector stand out.

My biggest concern fwiw is the relatively modest costs of entry to the business. A couple of major energy companies, especially with significant new technology, muscling in to try to clean up the huge profits I expect would be unwelcome. The consolation is that such competition would probably sweep up GRID for what to them would be small change - not that shareholders here would think of it as such!

[jonwig] 24/3/2022 12:03

But each project has a finite life and the nav will therefore begin to decline (DCF calculation), whilst maintenance costs increase. Therefore the portfolio needs refreshing with new projects financed with equity raises.

It's the same with all these asset-backed companies: infrastructure, renewables, etc.

[hiddendepths] 24/3/2022 11:54

The energy environment has become incredibly supportive of GRID's business model going forward for years to come. There's going to be a dash for massively more wind generation, with all its inherent volatility. I thought this was a fantastic long term investment already but it's looking increasingly knock-out! I suppose to a large extent it's a self-limiting asset and income play, the problem being that a big expansion will inevitably be funded primarily by equity issues, limiting NAV growth.

Even so, I think it's quite surprising that the share has completely ignored the positive drivers which are falling into place. At present I'm riding the wave of oil and, especially, gas companies but when that starts to run out of steam (to mix metaphors) I fully intend to at least double up the already significant holding in my SIPP.