HydrogenOne Capital Growth — Hydrogen options maturing

Research: Investment Companies

HydrogenOne Capital Growth — Hydrogen options maturing

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.

Written by

Harry Kilby

Analyst

Investment Companies

HydrogenOne Capital Growth

Hydrogen options maturing

Investment trusts

QuickView

22 April 2024

Price

44p

Market cap

£57m

NAV*

£134m

*31 December 2023

NAV/share

103.0p

Discount to NAV*

57%

*Including income

Yield

0%

Code

HGEN

Primary exchange

LSE

AIC sector

Renewable Energy Infra

52-week high/low

76.1p

41.0p

NAV* high/low

103.0p

95.6p

*Including income

Business description

HydrogenOne Capital Growth invests in a distinctive and concentrated portfolio of hydrogen assets across the entire hydrogen value chain. Its investment objective is to deliver investors an attractive level of capital growth. It aims to generate value for its shareholders through clear exit strategies via IPO or trade sales.

Bull

Portfolio companies continue to outperform the Solactive Global Hydrogen Index (SOLGHYD).

Credible, strategic co-investors.

2023 saw a strong increase in global investments committed to clean hydrogen with $17bn of investment, a 400% increase to 2022 levels.

Bear

Confidence surrounding hydrogen technology has continued to decline since 2021 highs.

Risk of legislation and regulatory changes.

Less mature/early-stage technologies present a higher risk profile.

Analysts

Harry Kilby

+44 (0)20 3077 5724

Andrew Keen

+44 (0)20 3077 5700

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.

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General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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