RBC Capital Markets has downgraded Gore Street Energy Storage Fund Plc (GSF) to “underperform” from “sector perform,” citing weaker risk-adjusted returns, dividend uncertainty, and limited near-term growth, in a note dated Wednesday.
The rating follows a 44% share price rally year-to-date, which analysts say no longer reflects the operational and market headwinds facing the fund’s non-U.K. portfolio.
The dividend target of 7p per share has been suspended. RBC estimates a covered dividend of 4p per share (about 6%) in FY26, which falls below the near 9% average among peers.
While BESS market volatility could enable future upside, RBC maintains a cautious outlook, especially in ERCOT, where asset saturation has driven performance below NAV assumptions. Irish revenues also face risk as the DS3 framework expires within 24 months.
GSF’s GB portfolio, with an average battery duration of 0.96 hours, continues to underperform compared to 2+ hour systems. There are no plans to upgrade, and future growth in this market remains uncertain.
Although the recent Harmony (JO:HARJ) Energy Infrastructure Trust (HEIT) transaction provided a positive mark-to-market signal, RBC believes the M&A potential is overestimated.
About 60% of GSF’s enterprise value comes from non-GB assets, where valuations remain untested due to limited transaction data.
GSF currently trades at a about 34% discount to its NAV of 102.8p per share, as of June 30, 2024. RBC expects NAV to fall to 86.0p in FY26 and 84.7p in FY27.
