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Hydrogen One hoping for uplift ahead of results tomorrow


Hydrogen as a fuel source could be the solution to the world’s climate issues. It’s the most abundant fuel in the universe, but because it is so light, it quickly escapes out of the earth’s atmosphere, making it only the third-most abundant element on earth.

The levity – or lightness – of hydrogen was first harnessed in transportation to provide the lift for dirigibles which were all the rage in the early 20th Century. However, the other property that hydrogen is well-known for – its extreme flammability – brought an end to the ‘airship era’ as the passengers and crew of the Hindenburg could testify.

However, hydrogen is now being explored as a transportation fuel source and way to generate electricity and for cooking and heating. It is the renewable potential of Hydrogen that Hydrogen One Capital Growth Plc [LON:HGEN], the closed-ended investment company is trying to exploit.

Emissions free

When combusted, Hydrogen is an emissions-free burn, producing water vapour and heat, meaning that it does not contribute to air pollution or global warming through the greenhouse effect. When burned in a fuel cell as a transportation fuel it can be used to power trucks, buses and cars. It is produced by electrolysis from natural gas, biomass and other sources, a process that uses electricity to split water into hydrogen and oxygen.

For the last 20-years ITM Power [LON:ITM] has been leading the way in designing and manufacturing electrolyser systems that generate green hydrogen. ITM’s process is based on proton exchange membrane technology and requires just renewable energy and water, with oxygen as the only by-product.

The company listed on AIM in 2004 and is headquartered in Sheffield within the world’s largest electrolyser factory. It also operates from a further two Sheffield-based sites and an office located in Hesse, Germany. The company announced earlier today a major expansion of its Bessemer Park facilities in Sheffield, expanding its power supply by 300% to 30 megavolt-amperes by the end of 2024. The expansion will see ITM leasing additional factory and office space, and the creation of a dedicated research and development and product validation centre. The rationale was to reduce the bottleneck in fabrication and scale up its manufacturing abilities.

Former CEO, Dr. Graham Cooley recently joined Pineapple Power Corporation [LON:PPC] as an advisor and last month was appointed chairman of H2 Green, a subsidiary of Getech [LON:GTC]

As well as its use in fuel cells for transportation, hydrogen can also be used to generate electricity by combustion in a furnace or boiler to produce stem, which powers conventional turbines as well as a fuel for cooking and heating.

However, hydrogen is a relatively new fuel, and there is still a need for development and infrastructure to support its use. It is also a more expensive fuel than traditional fuels, such as natural gas and electricity. It flammability make it a delicate element to deal with, but despite the challenges, hydrogen has the potential to be a major player in the future of transportation and energy. It is a clean, efficient, and versatile fuel that can help reduce our reliance on fossil fuels.

New player, new game

Hydrogen One is a relatively new investment company, having only been established in 2021 – shadowing the nascent development of the hydrogen industry. As at the close of last year, the fund had a NAV of GBP125m with a market capitalisation of around GBP100m. The investment advisor (i.e. the fund’s manager) is HydrogenOne Capital LLC run by JJ Traynor, a former Shell [LON:SHEL] and BP [LON:BP] executive and previously an analyst at Deutsche Bank who teamed up with former Artemis fund manager, Richard Hulf, who also had stints at EY and Exxon.

The fund has an investment objective to deliver an attractive level of capital growth by investing in a diversified portfolio of hydrogen and complementary hydrogen focussed assets. Multinational chemical company Ineos is a strategic investor through Ineos Energy. As the hydrogen sector is fairly new, and many of the technologies are in a early-stage, there is not a huge universe of listed hydrogen companies. Also, as the technology develops, more value can be captured at an early stage and the company states that at least 90% of the fund will be invested in private equity over time, with the remainder in a focused portfolio of listed hydrogen companies.

Unquoted investments

The finds investment strategy is to focus on revenue-generating unquoted businesses requiring growth capital, with clear exit strategies, and hydrogen supply projects. The fund managers claim that clean hydrogen supply could reach USD2.5 trillion in annual sales by 2050 and since IPO in 2021, HGEN has invested more than GBP100m in a diversified portfolio of UK and European hydrogen-focused assets

The fund has a pipeline of attractive investment opportunities exceeding GBP500m and in 3Q22 Hydrogen One made a new GBP8.4m private investment in offshore hydrogen and CO2 pipeline leader Strohm Holding B.V. The Strohm investment brought the number of private portfolio positions to nine for a total aggregate investment of GBP103.2m invested in low-carbon growth.

Other investments include Sunfire, a German industrial electrolyser producer behind the EU-funded project, Green Hydrogen for Green Steel, the world’s largest high temperature electrolyser with a record production of almost 100 tons of green hydrogen for the climate-neutral production of green steel.

The fund also holds a position in Bramble Energy UK-based fuel cell and portable power solutions company which was awarded UK Government funding to help decarbonise the maritime sector and secured funding from the Advanced Propulsion Centre (APC) as part of the Automotive Transformation Fund – a programme supporting large-scale industrialisation to build electrified supply chains in the UK.

Also in transportation, the fund holds a position in Cranfield Aerospace Solutions, a UK-based passenger flight innovator powering turboprop flight with hydrogen and NanoSUN a UK-based developer of hydrogen distribution and mobile refuelling equipment

Steady performance

Lacie Midgley, an analyst for PanMure Gordon said: “The portfolio remains well-diversified with invested companies continuing to perform steadily. With strengthened support in key jurisdictions such as the US through the Inflation Reduction Act (IRA), we view the current 11.9% discount as unjustified for a managed, pureplay fund successfully investing into ever-dominating themes,” in a recent report.

The fund opened trading today (3rd April) at 49.5p and has offered a year-to-date return of -39.4% and a one-year return of -55.7% with prices ranging between 38.55p and 105p over a 52-week period.

The fund is due to publish its FY2022 Annual Results and management will give an investor presentation tomorrow.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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