Gore Street Energy: don't let 'cuckoo' RM Funds into the nest
Gore Street Energy Storage (GSF ) is emphatic about defeating RM Funds’ bid to oust its board, describing the activist as a ‘cuckoo in the nest’.
The portfolio of battery storage projects was shocked to receive a requisition notice from RM Funds the day before its annual results were due. Manager Alex O’Cinneide described this as a ‘chaotic move’, especially given a strategic review was already underway.
Income investment specialist RM Funds, the second largest shareholder with a 5% stake, is seeking to replace two directors and flagged concerns about sustained underperformance, as well as the fund’s persistent discount, governance and strategic direction.
The board of GSF unanimously recommends that shareholders vote against all the requisitioned resolutions at a meeting on 20 August.
Chair Patrick Cox, who is one of the board members targeted by RM Funds alongside non-executive director Caroline Banszky, said he met with the group after it had reached the 5% stake and had asked if they intended to requisition, but they did not reveal their intentions.
‘I was surprised that this [requisition] was submitted the day before the annual report,’ Cox said.
O’Cinneide, who co-founded Gore Street Capital, described the requisition as ‘distraction and noise’.
‘The timing is very confusing…it is a chaotic move,’ he said, adding that he has received support from significant long-term shareholders since the requisition.
Further complicating the story, and confusing Gore Street, was the fact that RM Funds was invited to put forward nominees for the board.
‘We told them we were happy to receive CVs,’ said Cox. ‘They refused.’
RM Funds is now proposing Brett Miller and Ian Dixon as replacements for Cox and Banszky, citing their experience in infrastructure.
However, Cox said ‘one [of the proposed board members] has a colourful history in activism’ and has the potential to start selling off in a way that is ‘hostile to the value proposition’.
While Cox did not confirm which board member he was talking about, it would appear he may be referring to Miller, a well-known restructuring adviser who is involved with the Ecofin US Renewables Infrastructure (RNEW ) wind-down.
‘We can move forward and add value instead of bringing a cuckoo into the nest,’ said Cox.
‘Not time to slice and dice’
Having chaired GSF since 2018, identifying projects, constructing them, energising and operating them, Cox believes the fund has reached a ‘plateau point’ that leaves it well placed with a higher operating base line to deliver returns to shareholders.
‘It is not the time to start slicing, dicing, and getting rid of what is a powerful base line that we have built over time with patient capital. Rewards can come for shareholders,’ he added.
Frustratingly for the team at GSF, the requisition comes just as the renewable market is picking up and the fund approaches the milestone of 1 gigawatt of operational capacity.
This will ‘generate revenues and scale we did not have before’, Cox said.
While the fund’s net asset value (NAV) declined 4% over the year to the end of March, O’Cinneide noted the shares are up 30% year-to-date as sentiment towards renewables improves.
Setting out GSF’s plan following a strategic review, O’Cinneide will sell its pre-construction assets, which are not delivering revenues, to free up capital. It will also push further into UK and Irish markets, adding duration to its projects ‘to capture additional value and revenues’: namely, by increasing one hour duration battery storage to two hours.
Further cost reductions will also be sought, with financing costs revised.
‘We have built a good base and we do not want to start breaking it up…in any way that diminishes the portfolio,’ said Cox.
‘We think the RM requisition is coming from a place of activist opportunism and is not representing value for all shareholders. We reject all elements of the requisition.’
Over the past three years, GSF’s shares are down 34% which compares to a 19.6% loss by the average fund in the AIC’s renewable energy infrastructure sector. It currently trades at a 40% discount.
