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HGEN sees progress despite share performance

HydrogenOne Capital Growth (HGEN) has announced its half yearly report for the period ended June 30 2023. NAV increased by 3.4% from £125.4 million at 31 December 2022 to £129.7 million at 30 June 2023. The share price has declined by 19.7% in the same period. The company’s current discount sits at 47%.

Despite the fall in the share price, the company continues to see generally positive progress with revenue growth from portfolio companies delivering an aggregate £52.0 million in total revenue in the 12-month period to 30 June 2023, an increase of 170% compared to the 12 month period to 30 June 2022. The adviser also estimates the carrying value of the private portfolio is at least 30% lower than comparable listed hydrogen companies, underlining their focus on private assets and their robust valuation methodology.

In addition, the adviser notes that the fundamentals of the clean hydrogen sector continued to strengthen, despite recent weak macro-economic conditions with some £13 billion of investment in green hydrogen year-to-date, a 380% increase over 2022 levels, underscoring the positive industry outlook and supportive regulatory regimes for clean hydrogen.

Commenting on the announcement, Chairman Simon Hogan noted:

“During the period, the company has continued to deliver consistent growth in the value of our private portfolio, through implementing our distinctive strategy of investing in the clean hydrogen opportunities not readily accessible elsewhere. With the majority of IPO funds now deployed, our approach has focused on incremental investments in existing portfolio companies, backing these management teams to deliver their growth plans, and assessing new growth opportunities. ESG is fully embedded in our investment decisions, and the board is pleased to see the introduction of six-monthly ESG reporting. The company is dedicated to further developing and progressing our ESG framework to achieve the highest reporting and performance levels.

“The company continues to see strong support for the energy transition from governments around the world and views the policy focus in this area as a catalyst for further growth. The fundamentals of the hydrogen sector continued to strengthen, despite weak macro-economic conditions, enabling us to identify unique accretive opportunities to invest in, across the entire value chain of the sector. Today the Investment Adviser is tracking over 170 completed projects totalling 800MW globally. In addition, the Investment Adviser are monitoring 13GW in projects that are under construction or advanced development with investment in land, electrolysers and FEED studies. Some 4.5GW of this is under construction currently.

“Overall, despite the uncertainty of the current economic environment, the board remains confident that the company is investing in a sector with a favourable outlook and believes in its growth potential as illustrated by the strength of our current pipeline of private clean hydrogen investments.

“So far 2023 has seen the continuation of the market uncertainties created by the aftermath of COVID-19, and Russia’s on-going invasion of Ukraine. This has resulted in high energy price volatility and supply chain issues, putting pressure on the economy, and contributing to inflation and higher interest rates. The investment adviser is seeing fundamental shifts in energy policy in many countries in response to this, in order to accelerate the transition to a low carbon economy and improve energy security.

“However, share prices of the innovative growth companies required to enable this transition, including the company’s, have seen considerable pressure over the first half of 2023. The global downturn has also affected our ability to raise capital in 2023, having last completed an equity raise of £21 million in April 2022.

“The board continues to monitor wider market events as they relate to the company, including the share price volatility in the market price of its shares and the discount to NAV at which the shares have traded through 2023. The board is not aware of company-specific factors that have led to the prevailing discount to net asset value to which the company’s shares trade and believes this is primarily driven by wider market events including the sudden, material rise in interest rates and an unfavourable macroeconomic backdrop. We are focused as a board on improving the share price for our investors, and believe that this can be achieved by crystalising value through third party investment in portfolio companies, and asset sales, delivered to maximise NAV, over time.

“In a further parallel development, listed funds have come under scrutiny from investors regarding the valuation of portfolios of private investments. The Company applies a consistent approach to portfolio valuation, centred on discounted cash flows, using the International Private Equity and Venture Capital Valuation 2022 (“IPEV”) Guidelines. Share prices in the listed markets are reflected in the valuation of the company through listed assets in the portfolio. The details of these valuations are set out later in this report. The resulting private valuation that has been set out in this report has an implied forward revenue multiple of 4 times 2024 expected revenues, which is some 30% lower than listed hydrogen sector multiples. This, the company believes, underscores the robust and conservative approach we are taking to valuations.

“The Board meets quarterly with the company’s investment adviser and holds regular meetings to review all of the company’s investment valuations. The Board also has regular contact with the investment adviser outside of formal board meetings. I and other board members attended the company’s capital markets day earlier this year, and met some of our investors and analysts, and the management teams of all the private companies that we have invested in. The investment adviser has a dedicated investment team, and has the right to be represented on all of the boards of the private assets.

“The board and company is committed to the aim of the company that seeks to generate NAV returns of 10-15% over time, including proceeds from exits, whilst investing in clean hydrogen for a climate positive impact.

“Our diversified approach to portfolio construction has provided resilience and our investment case has been reinforced further by macro tailwinds and supportive regulatory regimes in the clean hydrogen sector, particularly in the EU and the USA. More than ever before, we remain confident that the company is investing in a sector with a favourable outlook and a substantial growth potential. Macro events have refocused efforts on the need to reduce global reliance on fossil fuels, with the company well-positioned to continue investing in low-carbon growth, aimed at reducing harmful emissions, improving energy security and driving the energy transition.”

HGEN : HGEN sees progress despite share performance


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