Shares in HydrogenOne Capital Growth (HGEN ) jumped 12% to 55p today as the investment trust continued this year’s volatile run after impressing sceptical investors with a small second quarter rise in net asset value (NAV) accompanied by a surge in revenues from its 10 loss-making companies.

Speaking to shareholders, co-manager Richard Hulf said there was a complete disconnect between the NAV, which rose 0.7% to 100.7p in the three months to 30 June, and the shares, which closed at a yawning 51% discount on Friday, which is among the widest valuation gaps in the renewable infrastructure sector.

Launched two years ago, HydrogenOne shares peaked at 120p in November 2021 before more than halving to their current level as investors questioned the valuation of its unquoted assets as inflation and interest rates rose rapidly.

Nevertheless, the latest update showed good valuation uplifts to its private equity positions in green hydrogen companies in the UK and Europe, even though an increase in its discount valuation rate from 12.8% to 13.7% weighed on the NAV and offset most of the gains.

Total revenues of £52m over 12 months marked a 170% increase year on year leaving the closed-end fund with cash of £8.9m and £3m in listed hydrogen companies that could be sold if necessary after making £2.6m of follow-on investments in Cranfield Aerospace Solutions and Thierbach, a construction of an industrial scale green hydrogen producer in Germany.

Despite earlier reassurances to investors that there was nothing amiss with the portfolio, HGEN shares have tumbled 38% this year. Hulf blamed macroeconomics depressing sentiment rather than trust-specific news.

‘Company revenues are growing, businesses are doing well, new projects are starting up and governments are increasingly putting money in. Hydrogen has had many false starts, but is now going ahead. We’re to show that through the interim results next month,’ Hulf (left, with co-manager JJ Traynor) said.  

He implied the trust conservatively values its assets, with last month’s flotation of the green hydrogen firm Thyssenkrupp Nucera, which has been valued at €3bn, having a direct read across with HGEN’s largest holding, Sunfire, a leading German industrial electrolyser producer in which the fund has 20% invested.

In terms of the trust’s pipleine, he said they were looking into US green hydrogen projects that benefited from the Inflation Reduction Act. However, investments there would have to wait until the trust regained a premium over NAV in order to raise more capital through a share issue.

Hulf emphasised that as a growth fund, they did not have the cash available to buy back stock, but would ‘think about it’ with the proceeds of any exits. He added that that could be as soon as next year when some of their investments would meet the minimum threshold of two times return on invested capital.

Liberum analyst Joe Pepper said valuing private market hydrogen companies was difficult given the nascent, loss-making nature of the portfolio, but continued to view the share price as overly discounting the challenges. He added that HGEN’s share price was highly volatile and underperforming listed hydrogen peers in the US.

Performance since launch

 Source: Morningstar