Harmony Energy joins wave of investment trust buyouts
Another investment trust looks set to be taken over by a private equity group amid a steep discount in share prices for UK trusts across the market.
Harmony Energy Income Trust has been offered £190.8m by Foresight Group LLP, a private equity and infrastructure investment house, the trust announced today.
The deal looks likely to pass a shareholder vote, as the company’s manager, which holds 12 per cent of the shares, has pledged to back the bid.
Foresight’s offer represents a 29 per cent premium to Harmony’s share price, and a 76 per cent premium to its share price last year, when the trust announced it would be pursuing a sale.
The trust’s share price jumped 20 per cent this morning on the news, though is still down 24 per cent in the last three years.
“There had been limited transaction evidence in the UK batteries space to date, contributing to a more cautious market pricing,” noted Winterflood analyst Shavar Halberstadt.
However, the offer from Foresight is still 9.1 per cent less than the value of the assets within Harmony’s portfolio, which is made up of eight 2-hour operational battery energy storage system projects.
“Perhaps this raises some questions over the quality of Harmony’s net asset value calculation in the first place,” said Quoteddata analyst Matthew Read.
The deal comes amid a wave of buyouts of the investment trust space by private equity firms, as the investment houses seize the chance to buy assets on the cheap.
The investment trust sector (excluding giant 3i) currently trades at an average 15 per cent discount to the value of their underlying assets, leaving them vulnerable to takeovers.
Other investment trust takeover attempts this year include Care REIT and the £1bn sale of BBGI Global Infrastructure.
Trusts have also been fighting off waves of takeover attempts that they see as too low, with both Warehouse REIT and Assura rejecting four separate buyout offers this year.
Harmony Energy Income Trust’s takeover
The proposal has sparked interest in the two other battery storage trusts on the market, Gresham House and Gore Street.
Shares in the former jumped 12 per cent this morning, while the latter jumped six per cent. Both trade at more than a 50 per cent discount to their underlying assets.
“In Gore Street’s case, the anticipated receipt of cash from its US tax credits could be the catalyst it needs to kickstart this process,” noted Quoteddata’s Reid.
Investec’s analysts said Harmony’s proposed takeover today represented a “good outcome for shareholders,” due to its sub-scale size and “limited prospects for growth”.
“The battery funds have experienced a chastening couple of years with a challenging revenue environment that resulted in the suspension of dividends, although there are faint green shoots for a recovery given the much improved trading environment in the last three months in the UK,” they added.
However, Read said that Foresight was getting “quite a bargain,” thanks to the nine per cent discount, which he said could be explained by the challenges in the battery storage space recently.