Here’s the long-promised update on the valuation of Gore Street Energy Fund (GSF) which continues to trade significantly below fair value. This post is a quick read: you will see in a handful of tables why GSF is trading on the cheap in my view. For more background on the asset see my previous article - Investing in the Future of Energy - For a Large Profit.
GSF currently trades at 62.1p per share resulting in a market capitalization of ~£314 million. This implies an Enterprise Value of about ~£333 million based on the latest figures and expected proceeds from the sale of the tax credits of the US assets that were recently energized. GSF has an operational portfolio 753.4 megawatts (MW) of battery storage assets, including assets energized after its reporting on March 31st, meaning the market is valuing GSF at an EV/MW multiple of roughly £442k.
Note: For simplicity let’s ignore the cash generated between March and July, assuming it is fully offset by the dividend to be paid given the stock has now gone ex-div (conservative approach).
The most recent comparable transaction in the sector is the take-private of Harmony Energy Income Trust (HEIT) by Foresight. Foresight’s final offer of 92.4p per share for HEIT implies a valuation of ~£860k/MW, nearly 2x GSF’s current multiple.
Even the runner-up Drax bid ~£835k/MW with its 88p offer. And Drax is a prime candidate to acquire GSF if it seeks to acquire a similar battery storage platform with scale - note GSF is one of the 2 large players in the UK that are still listed after HEIT was taken private.
Firstly, it is important to note that HEIT itself used to trade at around 50p/share for most of last year, and went as low as 33p/share in February 2024. I was an investor in HEIT at the time and I knew the company was worth a lot more – in fact its official NAV per share was over 92p per share, in line with the take-private price in the end.
Any investor who saw the share price trading at a discount to NAV of over 50% should have known this was an opportunity of a lifetime, given the asymmetry between the high upside potential and very low downside risk at the valuation that was prevalent at the time when it was listed.
In my view the same is true of GSF today.
Now, it’s worth mentioning that HEIT’s portfolio features 2-hour duration batteries, which typically command a premium over GSF’s ~1-hour average duration assets. 2-hour batteries have obvious advantages and therefore command a premium, but not a 100% premium. A 2-hour battery in Great Britain earns about 30% more in revenue than a 1-hour battery in (28% and 36% in 2023 and 2024 respectively). This premium is due to 2-hour batteries being able to capture more value from price arbitrage opportunities and perform multiple cycles during volatile market conditions that are increasingly dominant in the GB revenue stack. The best part: GSF has recently announced plans to retrofit some of its assets to increase duration to 2 hours.
GSF plans to retrofit three major UK sites to extend their durations to 2 hours:
Stony (79.9 MW)
Ferrymuir (49.9 MW)
Enderby (57 MW) – at a later stage
The estimated retrofit cost of £18-22m for the first 2 assets ranges between £140-£170k per MW, ie. markedly less than the current discount of ~£420k per MW versus HEIT’s valuation. This means, even assuming the higher retrofit cost of £170k/MW, GSF could unlock an estimated £250k per MW in net value. This would imply a 60% premium over the current market cap, after accounting for retrofit expenditure. An equivalent way to look at retrofitting is to assume the potential buyers would require a £170k/MW discount to HEIT’s valuation so that they could then pay for the retrofitting themselves - essentially valuing GSF at ~£690k/MW. See the table below:
You may be asking: “Ok but why now?” - Following Foresight’s acquisition of HEIT, GSF recently announced that it will remove its takeover fee (a contractual barrier that previously discouraged acquisition attempts) effective October 1, 2025. With that fee off the table, and only a couple of listed battery storage platforms of scale in Great Britain left after HEIT’s take-private, GSF is a prime acquisition target in my opinion. And if this happens, the transaction is likely to be at a valuation consistent with HEIT’s valuation, implying a ~60% uplift vs the current share price, which is very close to GSF’s current NAV of 102.8p/share - note that HEIT was ultimately acquired at NAV (92.4p/share) despite trading as low at as 33p/share not so long ago.
I hope this was helpful - and as straight to the point as I could make it - to explain why I am deeply invested in this stock. I believe this is a very asymmetric opportunity, that could deliver returns as high as 60% in less than a year if a take private is announced, and with little downside otherwise, as this remains a strong and uniquely positioned platform with an attractive cash flow yield (again, see my previous article for more details on the platform itself - Investing in the Future of Energy - For a Large Profit).
Disclaimer: The content presented on this website is strictly for informational and educational use. It should not be considered as financial or investment advice, nor does it guarantee any profit. While we strive for accuracy, errors may be present; please conduct your own due diligence. Opinions expressed are the author's own and may change without notice.
Disclosure: At the time of this article's publication, the author holds shares in GSF. This position may be altered or liquidated at any time without prior notification.
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