Research: Investment Companies
HydrogenOne (HGEN) holds a distinctive and concentrated portfolio of assets across the entire hydrogen value chain (95% private, 2% public). In its FY23 results, its NAV and NAV per share increased 6% y-o-y to £132.7m and 103p, respectively. Total revenue from its portfolio companies grew 125% y-o-y to £74m. Throughout FY23 the fund continued with follow-on investments, totalling £10.6m. It had a cash position of £4.6m at end-FY23 and an additional £2.3m in listed hydrogen companies. The fund currently trades at a 57% discount to NAV.
HydrogenOne Capital Growth |
Hydrogen options maturing
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Investment trusts |
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22 April 2024 |
Business description
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HydrogenOne (HGEN) holds a distinctive and concentrated portfolio of assets across the entire hydrogen value chain (95% private, 2% public). In its FY23 results, its NAV and NAV per share increased 6% y-o-y to £132.7m and 103p, respectively. Total revenue from its portfolio companies grew 125% y-o-y to £74m. Throughout FY23 the fund continued with follow-on investments, totalling £10.6m. It had a cash position of £4.6m at end-FY23 and an additional £2.3m in listed hydrogen companies. The fund currently trades at a 57% discount to NAV.
Portfolio update
In FY23, several portfolio companies achieved key milestones. In Q1, HH2E launched Thierbach, a 100MW green hydrogen project using wind and solar, with HGEN investing £1.9m in the project. The HH2E restructuring gave HGEN access to the 100MW Lubmin project, producing 7,000 tonnes of REDII-compliant green hydrogen per year from 2026. In Q3, Sunfire, which manufactures electrolysers for hydrogen production, was awarded a 100MW alkaline electrolyser contract and received a €169m Important Projects of Common European Interest grant. Post-year end, Sunfire secured €0.5bn to launch a new 500MW alkaline electrolysis plant in Solingen (HGEN invested £1.8m into Sunfire in FY23). Strohm, specialist in thermoplastic composite pipe (TCP) for hydrogen infrastructure, expanded its Dutch plant’s capacity to produce 140km of TCP per year. In Q4, Elcogen, which specialises in solid oxide fuel cells and electrolysers, received a €45m investment from HD Hyundai Group and began construction on its 100MW facility in Estonia. The company will look to increase the site’s capacity to 360MW, having secured €140m of funding with strategic investment from Baker Hughes.
Continued investment and strategic partners
In total, HGEN invested £10.6m into its portfolio alongside strategic partners in 2023. Key investments included £3.5m into Cranfield Aerospace, for the development of hydrogen-powered turboprop passenger flight and cargo drones, and £2.5m in NanoSUN, for the development of pioneer hydrogen distribution systems. HGEN’s high-profile co-investors include Shell, Hyundai, Foresight Group and Amazon, a testament to the strength and potential of the technologies in the fund’s portfolio.
Significant discount to NAV
HGEN’s discount to NAV widened significantly in FY23, starting the year at 18.5% and ending at 51.8%. The discount continued to drift higher post year-end, with the fund currently trading at 57%. The substantial increase can be partially attributed to several market factors that affected the broader renewable energy sector, including elevated inflation, higher market discount rates, shifts in energy policies and a weaker funding environment for emerging technologies. The general widening of discounts across the sector has highlighted the disconnect between the fund’s reported NAV and the market’s assessment of the underlying asset values and is not reflective of HGEN’s strong operational performance in FY23. HGEN’s weighted average discount rate used in its NAV calculation increased from 13% in FY22 to 14.2% in FY23.
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Financials
S&U reported FY24 PBT of £33.6m, down from £41.4m in FY23 on higher funding and regulatory costs and higher impairments in Advantage in H2. PBT was 2% ahead of our forecast as stronger revenues – up 12% to £115.4m – and better costs offset higher-than-expected impairments. Net receivables grew to a record at both Advantage and Aspen and management noted particular strength in Q4 and a good trading environment in the current year. Having absorbed a significant rise in funding cost as well as additional regulatory cost, the company looks well positioned to deliver steady growth from here on, especially if interest rates fall in the latter half of 2024 (which we have not included in our model). Diluted EPS was 209.3p (FY23: 277.5p) and DPS was 120p (FY23:133p). We have raised FY25e EPS estimate by 2.4% to 230p and introduced FY26e EPS at 263p.