Gore Street Energy Storage
Much like those selling picks and shovels getting rich in a gold rush, rather than the miners themselves, so there are investment funds that believe they are similarly placed in the field of energy infrastructure (Greig Cameron writes).
Gore Street Energy Storage is one. Its focus is not on the consumer-facing front line of the drive to net zero, the smart meters and electric vehicle charging points that will become commonplace over the next decade or so, but on the “picks and shovels” that will make it all possible. In this case, the power that will drive the technological revolution forward.
When it went public more than three years ago, it claimed to be the first renewable energy fund listed in London focused solely on investing in industrial-sized batteries. To date, its projects stretch from Fife in Scotland south to Essex in England’s southeast. It has assets in Wales, Northern Ireland and the Republic of Ireland and a mandate to look into other locations, such as Europe and North America.
A few of the larger assets are still being built, but many are operational and generating revenue. The existing batteries help to cover shortfalls in energy generation for National Grid in Great Britain or Eirgrid across the island of Ireland. They also can be used to store excess power produced.
Batteries are seen as key to decarbonising the grid as they can help to balance out the intermittent supply of wind and solar power. According to Alex O’Cinneide, chief executive of Gore Street Capital, the investment manager of the fund: “If you are a believer in the continuing growth of renewables and the decommissioning of coal, gas and to an extent nuclear, then you should be a believer in the growth of battery storage. The real growth trajectory is ahead of us.”
Gore Street has indulged in some energy trading, but the bulk of its revenue comes from the balance it can offer to the grid. The contracts it has with grid operators, which can range from one month to several years, mean that the returns from the portfolio are predictable and provide a reliable income source for investors.
It hoped to raise between £75 million and £100 million during its initial public offering, but adjusted its expectations downwards amid tough market conditions. Eventually, only £30.6 million was raised in May 2018 with shares priced at 100p as it made its debut on the main market in London. It targeted a long-term annual dividend equivalent to 7 per cent of its net asset value and an internal rate of return of between 10 per cent and 12 per cent on its assets.
Since the IPO, its fundraising has been more successful and it has steadily added to its portfolio. It raised £60 million at 100p in December last year and then in April tapped investors for £135 million more, at 102p per share, to fund the next phase in its “pipeline” of opportunities, which is said to have 1.3 gigawatts of capacity.
The demand for shares has pushed the company’s market capitalisation above £300 million, with the share price flat yesterday at 109½p.
The first deal from the most recent fundraising was confirmed last month — the purchase of an 80-megawatt storage project in Milton Keynes, the fund’s largest to date. The £30 million construction project is expected to take between 12 and 15 months. It also said last smonth that it had secured exclusive rights to a further 300MW of UK assets and was conducting due diligence and that contracts for four sites in Ireland had been extended by a year to 2024.
ADVICE Buy
WHY Managers are deploying capital quickly to build a portfolio capable of delivering reliable income returns in a growing sector
SThree
If the money coming into your business has dipped during the pandemic, there at least can be consolation in the knowledge that you outperformed your rivals (Louisa Clarence-Smith writes). So it was for SThree yesterday.
Net income at the recruitment agency, a specialist in hiring people for roles in science and technology, fell by 9 per cent in the year to end of November, but that was better than the double-digit declines from the likes of Hays and Robert Walters, which have greater exposure to traditional job markets, such as accounting and finance.
Moreoever, SThree’s fee income returned to pre-Covid levels during its first quarter, which covers the three months to the end of February, and in a trading update yesterday it said that quarterly net fees for the second quarter were up 22 per cent year-on-year and were 8 per cent higher than in the same period in 2019. Over the six months to the end of May, group net fee income rose by 10 per cent to £164.3 million on the year.
Part of the uplift can be attributed to an economic recovery that has boosted the jobs market. The remainder is largely down to the sustained expansion in demand for science, technology, engineering and mathematics, the so-called Stem skills — a phenomenon accelerated by the pandemic and the resulting new focus on technology — and in life sciences, further supported in its case by greater access to capital and improved public sentiment.
SThree said that life sciences accounted for 24 per cent of its income in the first half, while technology fee income accounted for 47 per cent. Moreover, the rebound in hiring activity is happening in all SThree’s regions. The business was sitting on net cash of about £48 million at the end of May and has access to a £50 million revolving credit facility.
The board intends to recommend an interim dividend at its results on July 19. The dividend cover for the year will be in the range of 2.5 times and three times, which analysts at Panmure Gordon estimate will amount to a full-year dividend of 7¼p a share. Given SThree’s exposure to hiring in the Stem market, there should be further upside for investors.
ADVICE Buy
WHY Exposure to Stem sector will drive growth
