Updated: Gore Street Energy Storage (GSF) has urged shareholders to vote against the wind-down resolutions tabled by Saba Capital and announced the sale of the first two assets as part of the battery fund’s recovery programme launched in March.
Chair Angus Gordon Lennox warned that the two resolutions the activist hedge fund requested last month be added to the annual general meeting on 16 September would be “value-destructive” and said the company should be given the chance to implement its new strategy of disposals to fund upgrades of its battery energy storage systems.
Lennox said: “The refreshed board, in undertaking its comprehensive review earlier this year, prior to establishing the updated strategy, considered all options for the company’s portfolio including a wind-down, but assessed a whole portfolio sale to be highly challenging in current market conditions, and therefore not the best route to maximising shareholder value.
“Instead, the board outlined a clear plan to augment the portfolio, alongside selective asset sales and distributions to shareholders to reward them for their patience while this took place, with clear and strict KPIs [key performance indicators] in place to measure the investment manager’s progress and ensure alignment.”
The statement followed the announcement yesterday afternoon that the £242m investment trust had sold its Kilmarnock and Mucklagh projects in Ireland to GS EU, a fund managed by Gore Street Investment Management, GSF’s fund manager.
GSF said its board “closely monitored” the transaction which was conducted “under strict information barriers” as part of a “competitive, independent bidding process” overseen by adviser Alexa Capital. The valuations of the 195 MW assets were confirmed by an independent third party acting for GS EU, but said the sale price was commercially sensitive and could not be disclosed.
However, it reassured investors that the disposal was “no less” than the valuations in the most recently published net asset value (NAV) of the company, and that best value had been achieved for shareholders.
This is the first in a series of disposals the board is arranging with the sale of the Cremzow asset in Germany delayed but close to completion.
Pietro Nicholls, the portfolio manager at RM Funds, who led the shareholder challenge to GSM’s previous board last year, said he would write to the board demanding more information on the sale.
“The same management platform sits on both sides of the transaction, under the same ultimate leadership, yet shareholders are told the consideration ‘cannot be disclosed due to commercial sensitivity’,” he wrote on LinkedIn.
Before today, GSF shares had fallen 13% this year to 47.5p and lost over half their value since launch at 100p eight years ago. They stand on a 35% discount below NAV, tempting Saba, holder of an 18.1% stake, to believe that a managed wind-down is the quickest way to generate a positive return for shareholders. RM Funds, an activist that is supportive of Saba, is believed to have reduced its position from 4.8%, although there has been no statement to the stock exchange. Sources believe it is somewhere between 2.5% and 4%.
This morning GSF shares rose 0.9p or 1.8% to 48.3p.
Our view
David Batchelor, senior analyst at QuotedData, said: “GSF’s new board has been in place for five months and has moved quickly to establish a sensible strategy, which it is now implementing. The first two asset sales have been announced, further disposals are underway and planned battery duration extensions are expected to increase revenues from the affected GB assets by at least 30%, which should increase their value markedly to potential buyers.
“Recent transactions suggest there is good value in the portfolio. We agree with Saba that GSF’s discount is too wide, but its attempt to force a wind down at this point is way too short term in our view, and risks eroding significant value by turning GSF into a forced seller. We think shareholders will be better served by giving GSF’s refreshed board time to implement its strategy, noting that shareholders also have the backstop of a continuation vote if the board misses its stated KPIs.”
