Morning briefing: Work on new battery projects lifts GRID valuation by 14.6%; Scottish Oriental Smaller consults shareholders after failing five-year performance test; VH Global Energy sells six Brazilian solar assets

Gresham House Energy Storage (GRID) grew net asset value by 14.6% in the second quarter, boosting the battery fund as its board resists pressure from activist shareholders to wind up on account of its longstanding discount, with the shares last night closing 26% below the new NAV. This gap narrowed again this morning as the shares rallied 5.5% to 103.5p in response to the half-year trading statement. This showed NAV per share rose 16.74p to 131.3p at 30 June from 114.56p at 31 March. The half-year increase, including a first quarter rise of 1.1%, was 15.8%, or nearly 18p from 114.56p at 31 December. Most of the six-month gain, 14.33p, was from the revaluation of 397MW of new projects as they began construction. A further 2.34p gain came from cash generated by the portfolio with revenues and operating profits growing 9.5% and 14.5% to £34.7m and £23.5m respectively. Fund manager Ben Guest said the first half had focused on working on the targets on the growth plan revised in May: “Our priorities for the second half of the year are clearly defined, and each translates directly into earnings and NAV per share growth. In addition, the team continues to extract value from the existing portfolio, focusing on uptime, costs and additional revenues from the traditional revenue stack.” 

Matthew Read, senior analyst at QuotedData, said: “This is a welcome update from GRID, whose recovery is gathering momentum as its growth plan starts to deliver. The c16% uplift in NAV, most of which came from the revaluation of projects under construction, highlights the value that can be created by growing the portfolio. Nonetheless, there are still challenges. Merchant revenues remain subdued but the portfolio is becoming much less dependent on them as contracted income grows. The Alternative Revenues trial also looks encouraging and, if it can be scaled successfully, could provide a valuable revenue source when traditional battery trading conditions are weak.” 

Scottish Oriental Smaller Companies (SST) has failed its five-year performance test and, under a commitment made in 2021, will launch a tender offer to enable shareholders to sell up to a quarter of the £1bn trust’s shares at a 2% discount to formula asset value (FAV), which is net asset value (NAV) minus the costs of the scheme. Under Sree Agarwal of First Sentier Investors, SST’s total investment return in the five years to 31 August was 28.04%, well below the 48.45% of its benchmark, the MSCI AC Asia ex Japan Small Cap index. Indicating a strategic review may be underway, the trust’s board said it “recognises the disappointing returns over the performance measurement period and is considering whether additional actions are required to ensure that the company meets the needs of investors. As part of that exercise, the board and its advisers are currently engaging with a number of the company’s shareholders.” Meanwhile, a new five-year conditional tender offer has been put in place as the company prepares a circular detailing how and when shareholders can tender their shares.

QuotedData’s Matthew Read said: “While disappointing for shareholders, Scottish Oriental’s performance has been lagging its benchmark for some time and so the likelihood that it would fail to meet the hurdle to avoid the tender being triggered has been well signposted. The 25% tender at a 2% discount to FAV gives shareholders a meaningful exit opportunity but there is a big question mark as to whether it will be enough. The board is clearly aware of this and is consulting shareholders on whether further action is needed. However, with a new five-year measurement period now under way, there is pressure on both the board and manager to demonstrate that the trust can justify its existence.”

VH Global Energy Infrastructure (ENRG) has made its second disposal in two days as its wind-down gathers pace. It has agreed to sell six of its 13 operational solar assets in Brazil to operating partner Energea Portfolio 2 for R$38m (£5.4m), an 8% discount to their net asset value at 31 March. R$3m of the price tag will be deferred for 12 months and will be adjusted by payments and costs to construction contractors although ENRG could earn an extra R$12m if revenue targets are met. Chair Bernard Bulkin said: “We continue to progress the process for the remaining Brazilian assets with Telefônica as the offtaker and will update shareholders as those discussions advance.” Yesterday ENRG announced the $134m (£99m) sale of two oil terminals to its fund manager Victory Hill. Proceeds from both disposals will be returned to shareholders via the issue of redeemable B-shares.

Matthew Read said: “Selling these assets at 92% of NAV is not a perfect result, but the earn-out could see it realise a 20% plus surplus over the NAV valuation. The transaction highlights that the c30% share price discount looks overdone, particularly when you consider that this group of assets have a less attractive offtake profile and so, hopefully, the remaining assets will achieve better pricing. This is the second disposal agreed in quick succession, highlighting that there is a market for these assets and, with the remaining Brazilian assets already in exclusivity, the expectation is that this should not be a drawn-out process.”