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Hydrogen One offering ‘a great entry price’


Hydrogen One Capital Growth Plc [LON:HGEN], the closed-ended investment company gave a portfolio update today (10th May) and updated the fund’s Net Asset Value.

As previously reported, 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 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.

Traynor, speaking to investors this morning, confirmed the fund’s NAV as at 31st March as GBP128.8m, a 23.8% increase from the NAV a year ago. NAV per share was 100.00p, up 3.3% compared to 1Q22 and up 2.8% compared to 4Q22. However, the share price has not kept pace with NAV. The fund opened trading today at 52.7p and had risen to 55.2p within the first two hours of trading. Hydrogen One has offered a year-to-date return of -29.7% and a one-year return of -41.1% with prices ranging between 38.55p and 97.4p over a 52-week period.

Traynor said: “We’re not happy with our share price, and we’re working to change that [… but] we’re trading at about half our NAV, and NAV is steadily rising […I don’t believe that] this is a company issue – it’s more a sector issue: Investors have reduced exposure to growth funds and moved away from renewables.”

Momentum trap

He explained that the fund had been caught in the momentum of the market, adding: “…what I would say to new investors is that now is a great entry price, as [we believe] that there is a lot of value on the table.”

The fund completed GBP4.5m of investments during the quarter, which included a GBP2.5m investment into a clean hydrogen project in Germany. The investment, into the Thierbach Project awaits a final investment decision from the German company. If the Thierbach Project decides not to proceed with the investment, Hydrogen One, and its co-investors will get their money back with interest.

The potential Thierbach investment was made alongside HH2E, a green hydrogen project developer with a focus on industrial customers in Germany, which is itself an existing portfolio company of Hydrogen One. Thierbach and H2E join another German name in the portfolio, Sunfire GmbH, a leading German industrial electrolyser producer which makes up 18.9% of the portfolio. In the period, Sunfire launched a new production facility in Solingen, Germany with investment of EUR30m at the facility. Further expansion is underway at Solingen, taking Sunfire’s total capacity to 500MW of alkaline electrolysis by the end of 2023.

Also in Hydrogen One’s roster is Cranfield Aerospace Solutions, a UK hydrogen flight innovator which makes up 6.8% of the fund’s NAV. The turboprop company recently announced a heads of terms agreement with Britten-Norman, to merge and to create the world’s first fully integrated, zero-emissions aircraft, for entry into service in 2026.

Hydrogen One has exposure to the solid oxide fuel cell and electrolyser market through Estonian/Finnish manufacturer Elcogen, which recently signed a MoU with Korea Shipbuilding and Offshore Engineering, a member of Hyundai Heavy Industries Group, one of the world’s largest shipbuilders, and the Germany-based Fraunhofer Institute for Ceramic Technologies and Systems to explore green hydrogen integration in ocean freight.

Transportation and Distribution

Mid- and downstream-hydrogen exposure is covered-off through Hydrogen One’s investment into Dutch pipeline company, Strohm Holding, which accounts for 12% of the fund’s NAV. The manufacturer recently expanded its factory in the Netherlands to increase its potential production of pipeline threefold. The firm also secured its largest contract to date, deploying its pipeline in Guyana. Hydrogen One also has 10.5% of its NAV committed to NanoSun, a UK-based developer of hydrogen distribution and mobile refuelling equipment.

The fund has 10 private investments in the hydrogen sector, accounting for 96.7% of the portfolio, with 3.3% of the portfolio invested in strategic publicly-listed equites relating to the hydrogen sector.

Traynor said that there was a positive outlook for the hydrogen industry underpinned by macro tailwinds in the hydrogen sector and supportive regulatory regimes in the US and Europe. The company noted that the UK Government had selected 20 green hydrogen projects as funding candidates during the quarter.

80% revenue-generating

The portfolio companies in the fund delivered around GBP40m of revenue in the year to end-March 2023, an increase of over 100% when compared to the year previously. Eight of the fund’s 10 private investments, representing 93% of its invested portfolio by value, are revenue-generating, producing equipment and technology solutions for clean hydrogen production.

Traynor said: “if you look at the [publicly-] listed hydrogen sector what you’ll see is strong revenue growth, strong margins, a negative EBITDA which is on the road towards profitability […] our [private] portfolio companies are displaying similar profile and characteristics.”

He did add that the public-listed companies in the sector had a 30% to 40% greater valuation, “…so there’s a lot of upside for our investors,” Traynor said. The fund exits its investments primarily through IPO or Trade Sale.

Traynor noted that the public-traded hydrogen companies as an entity had been having a rough time in the market. “Listed companies [in the hydrogen sub-sector] have seen high degrees of volatility [in share price] and have tracked down since the highs of 2020/21.”

He said that the sub-sector had behaved in a similar fashion to the Nasdaq, and investors were still looking at hydrogen as a ‘tech’ sector.

The fund held cash and cash equivalents of around GBP12.5m at the end of 1Q23 as well as GBP3.8m of publicly-listed hydrogen companies.

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 early-stage, there is not a huge universe of listed hydrogen companies – around 40 companies globally. 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.

The fund’s 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.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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