HydrogenOne Capital Growth (HGEN) has published its interim results for the six months ended 30 June 2024. During the period, NAV per share increased by 0.6% from 31 December 2023 to 30 June 2024 (102.99p to 103.60p), while total NAV grew by 0.6% from £132.7m to £133.5m and the share price increased by 7.8% over the same. HGEN says that it saw positive progress on revenue growth from its portfolio companies, which delivered an aggregate £76m in total revenue in the 12-month period to 30 2024, an increase of 44% compared to the 12-month period to 30 June 2023. The top performing investments were: HiiROC, HH2E and Bramble all of which have demonstrated notable progress.
Strategic industrial and major financial investors have backed HydrogenOne portfolio companies this year, totalling €670m, which has included investment from Baker Hughes and GIC. Consolidation of HH2E also added an interest in the Lubmin green hydrogen project. HGEN estimates the carrying value of its private portfolio is in line with comparable listed hydrogen companies, which it says underlines its focus on private assets and robust valuation methodology. Investment activity centred on follow-ons. During the period HGEN made further investments in five Private Hydrogen Assets in its portfolio, totalling £2.6m.
The portfolio weighted average discount rate at 30 June 2024 was 13.3% (31 December 2023: 14.2%) resulting in a 1.67 pence per share increase in NAV between 31 December 2023 and 30 June 2024. HGEN had an uncommitted cash position of £1.6m as at 30 June 2024, and £0.3m of listed hydrogen companies at the end of the period.
HGEN says that the fundamentals of the clean hydrogen sector continued to strengthen, despite continued weak macroeconomic conditions. The investment adviser has tracked a 50% increase in green hydrogen production over the last year, and a 25% increase in investment in the sector so far this year, compared to all of 2023, underpinning further growth.
ESG metrics
HGEN is an SFDR Article 9 impact fund with a sustainable investment objective aligned with the climate change mitigation goal of the EU Taxonomy. It has invested £116.3m in low-carbon growth since inception, with 157,868 tCO2e cumulative greenhouse gas emissions avoided since IPO. 62,282 MWh potential lifetime clean energy of products installed in the first half of 2024 and 859,576 MWh since IPO.
HGEN has 88.1% alignment with EU taxonomy for sustainable activities at 30 June 2024 and the company produced its first standalone Sustainability Report aligned with the International Sustainability Standards Board as an early adopter, including the S2 Climate Standard that incorporates the Taskforce on Climate-related Financial Disclosures recommendation. HGEN reported to the Principles of Responsible Investment (PRI) and the Carbon Disclosure Project (CDP) and continued stewardship activity with private portfolio companies to further enhance ESG credentials and reporting.
Challenging macroeconomic backdrop
HGEN says that the macroeconomic climate continues to be a challenging one, reflected in the discounted valuations of the investment trust sector and in capital outflows from UK equities, in turn preventing the majority of investment trusts from raising further capital. Higher market discount rates and reduced risk appetite have also resulted in investors re-allocating capital away from growth sectors in particular. Like its peers, this has impacted HGEN’s share price which remains at a steep discount to the value of its assets, despite steady continued growth in the underlying value of the portfolio. The board says that it is acutely aware that the current share price does not reflect the ongoing tangible value creation it has witnessed across HGEN’s investments and their significant potential for further growth, but trusts that maintaining its stewardship of the portfolio, supported by selective investments, will continue to see steady growth in the value of our portfolio and over time improve the share price. HGEN is also working diligently towards “successful divestments” that it says will result in a positive cash return for the company from these realisations and prove the value that lies in the portfolio.
HGEN says that the outlook for the clean hydrogen sector remains positive, underpinning its view that the portfolio will generate attractive returns over time. It adds that its investment case continues to be reinforced by increasingly supportive regulatory regimes in the clean hydrogen sector. New regulations and funding for clean hydrogen are being rolled out in the USA, UK and EU. The EU, where the company has 60% of its NAV, has reshaped its energy policy to the REPowerEU 2030 plan, which calls for over 300GW of clean hydrogen by 2030, compared to 80GW in previous plans. HGEN says that Germany is a leader in clean hydrogen developments and has incorporated the RED III Delegated Act into national law, which confirmed a 42% target for use of renewable hydrogen in industry by 2030, and announced plans for more stringent measures to curb GHG emissions for use of renewable hydrogen in industry. HGEN says that the newly elected UK government has pledged to deliver 10GW of low-carbon hydrogen production by 2030.
Portfolio update
HGEN’s portfolio comprises nine private investments in green hydrogen innovation companies. The portfolio is diversified across the sector’s full value chain from green hydrogen production developers to hydrogen applications, supply chain and storage and distribution. Six of the company’s private investments are revenue generating, producing equipment and technology solutions for green hydrogen production. The aggregate revenue from these investments was £76m in the 12‑month period to 30 June 2024, an increase of 44% from the 12-month period to 30 June 2023. This growth is a result of portfolio companies receiving an increasing number of customer orders for their unique technologies. With HGEN’s capital now fully deployed, it is focused on incremental investments in existing portfolio companies.
HGEN’s portfolio companies continue to attract fresh capital from strategic investors, with over £560 million of investment completed during the period. A successful equity funding round by Sunfire as part of a wider funding package totalling more than €500m in fresh capital; the Baker Hughes investment in Elcogen marking the close of a €140m funding round; and Strohm, completing a €30m raise.
