Gresham House Energy Storage (GRID ) and Harmony Energy Income (HEIT ) ‘could attract interest as a corporate target’ after share price crashes left both battery funds vulnurable to bids, said Stifel. 

The broker, who upgraded GRID to ‘positive’ from ‘neutral’, estimated its shares traded below the replacement cost of its portfolio of battery energy storage systems.

GRID shares fell 10% last week as the company confirmed it would not pay dividends this year and restructured its debt in response to an alarming slump in UK revenues caused by falling power prices and the grid’s under-utilisation of battery systems in its balancing mechanism.

Having slumped two-thirds this year, the shares are stuck on a 67% discount to a net asset value over which there is great uncertainty due to the revenue decline. This gives GRID a market value of about £220m and an enterprise value – including debt – of £395m.

In a note this morning, analyst Sachin Saggar said: ‘This equates to a valuation of about £360k per MW or £230 per MWh for a portfolio that will be about 1.6 hours in duration by the end of 2024. As a comparison, Harmony Energy is trading at about £580k per MW, or £290k per MWh, for a two-hour duration portfolio.

‘While there is some debate around costs to build new assets and whether these are set to fall, this has been around £450k per MW for a one-hour asset and £700k per MW for a two-hour. Hence, both funds appear to be comfortably trading below replacement cost,’ he said.

Assuming annual revenues of £60,000 per MW and around £20,000 per MW of operating costs, Saggar estimated GRID’s enterprise value was nine times earnings, a multiple that he said did not ‘look particularly stretched’ but depended on how revenues evolved.

‘Given implied valuations, Gresham House Energy may also be a corporate target, as is Harmony Energy, despite Gresham having a lower-quality portfolio. Leverage is lower at Gresham and while there may be a liquidity squeeze, the fund has substantial assets to cover its debts,’ Saggar said.

GRID shares jumped 5.5%, or 2.3p, to 44.4p. Harmony Energy, for which Stifel acts as joint broker, was unchanged at 44p on a 58% discount.

HEIT has risen 11% in the past week following a more positive update. The company will shortly announce if it will resume dividends after following GRID in suspending a quarterly payment in February. The shares have fallen 44% this year.