Gore Street Energy Storage (GSF) has unveiled its strategic review, announcing plans to sell 8% of assets to upgrade the remaining portfolio and increase revenues as it looks to win back shareholders after last week’s dividend cut and head off a challenge to its board.

The £314m battery fund said it would seek buyers or co-investors of its 495 MW of pre-construction assets in Great Britain, Ireland and Texas. It said these were valuable assets with land, planning permissions and grid connection rights secured and preliminary works completed and procurement well-advanced. 

It reserved the right to build one or some of the assets but only if that could be financed on a “standalone” basis.

It said not only would these disposals confirm the valuation of the assets – an important point for a company whose shares trade 40% below net asset value (NAV) – they would also free up more cash to double the duration of its GB and Irish batteries to two hours.

GSF said it had already attracted interest from “multiple counterparties” and was in “active negotiations” for its one GB and three Irish pre-construction assets.

Over the last 18-24 months, the company said there had been a significant reduction in battery costs and capital expenditure needs of its business. This coincided with changes in the UK electricity trading and ancillary service markets that meant two-hour duration storage systems were expected to capture a 37% increase in revenue over one-hour systems.  

“This trend materially enhances project economics, increasing the return profile and therefore presents a clear path to value enhancement through increased revenues and free cashflow,” it said.

As reported last week, a first phase in the two-hour upgrades will see GSF spend £18m-£22m from existing capital reserves on its Stony (79.9 MW) and Ferrymuir (49.9 MW) UK projects by next year.

A second phase, funded by the disposals, will see Enderby (57 MW) in the UK and Mullavilly (50 MW) and Drumkee (50 MW) in Ireland augmented by 2027.

Alexa review

The ability to earn higher revenues on longer duration batteries was confirmed in an independent strategic review by Alexa Capital.

Its report said the company’s NAV was in line with market valuations and found there was private buyer appetite for a battery energy storage sector poised for further growth.

It also identified hedging products the company could use to reduce revenue volatility. A slump in UK revenues at the start of last year caused a crisis in the nascent battery sector, from which GSF and its more UK-focused rival Gore Street Energy Storage (GRID) are only just emerging.

The company’s use of artificial intelligence is apparently also paying off. GSET, a proprietary AI-driven trading platform developed by fund manager Gore Street Capital, has replaced third-party providers on much of the GB portfolio and will now be extended. In the current financial year it has achieved 11% more revenues than the sector’s GB Modo benchmark, the company said.

Board vote looms

With its shares down 38% over five years, investors have wanted action. Last week RM Funds, a long-standing investor, requisitioned a general meeting to replace the board, sell assets and look for a merger partner, potentially GRID.

Today the company issued a circular for the meeting in London on 20 August. It urged investors to vote against RM Funds’ resolutions saying the company was now positioned for sustainable long-term growth, which “would be at risk of being derailed by an activist investor via its nominees.”

“One of RM Funds’ proposed nominees is an individual known for joining boards of investment companies to restructure and start a managed run-off of portfolios,” it said in reference to Brett Miller, a restructuring specialist overseeing the wind-down of Ecofin US Renewables (RNEW).

Chair Patrick Cox said: “This strategy update follows a series of actions your board has taken to ensure alignment with the interests of shareholders, including the reduction in management fees, and our intent to continue to declare sustainable dividends during this bridging year for the company and towards driving share value appreciation.”  

Alex O’Cinneide, chief executive of Gore Street Capital, said: “This programme of work will add significant value to the portfolio and support a fully covered and sustainable dividend to our investors.”

Deutsche Numis analyst Andrew Rees: “We do not expect this to be enough to assuage concerns of RM Funds which holds a c.10% stake, according to Bloomberg, which had suggested the fund should look to exit certain geographies to rationalise the portfolio.”

The shares gained 1.3% to 62.5p.

Our view

QuotedData’s head of investment company research, James Carthew, said: “Gore Street Energy Storage has completed its strategic review and set out a plan that looks to me as though it will enhance the NAV and boost dividend cover. Changing the board on the grounds that another strategic review is needed feels redundant, therefore. However, the main difference between the two sides is that the RM nominees seem focused on cashing up now, whereas the existing board sees greater upside in continuing to invest in a sector that has undeniable potential. Where I feel Gore Street’s statement is lacking is any mention of share buybacks as a means to narrowing the discount. I would have hoped that Gore Street would have weighed up the projected returns from upgrading existing assets and building out selected pre-construction projects against the impact of buybacks, but this morning’s statement doesn’t say that. This is the question that shareholders need answering before backing the existing board, but if the answer is yes, I would be minded to stick with the current directors.”