Doceo Discount Watch

Discount Watch

The number of investment companies hitting 52-week high discounts reached double digits last week – the first time that’s happened in over three months. But which sector contributed a third of the names on the list?

By Frank Buhagiar

We estimate there to be 12 investment companies that saw their share prices trade at 52-week high discounts over the course of the week ended Friday 13 September 2024 – three more than the previous week’s nine.

Four of this week’s 12 herald from the renewables sector. It has been a while since that happened. Back in Q1 2024, renewable investment companies were regular contributors to the 52-week high discount list. That was when the higher-for-longer interest rate narrative dominated market sentiment – as well as making financing more expensive, higher interest rates lead to higher discounts rates which are used to value a company’s assets. Higher discount rates equal lower valuations.

So, with interest rates now coming down in the UK and Europe and with the first cut expected possibly this week in the U.S. why the sudden jump in renewable 52-week high discounters? Might be down to news this week from Aquila European Renewables (AERS) that its long-running strategic review failed to find a buyer willing to pay an acceptable price for the company. AERS will now hold a continuation vote at the next AGM which could lead to the fund being wound up.

The AERS news, which was released on 12 September, good for a slight narrowing in the fund’s share price discount. Not for the likes of Atrato Onsite Energy (ROOF),  Ecofin US Renewables Infrastructure (RNEW) and HydrogenOne Capital Growth (HGEN) though, the share prices of which all set new year-high discounts the next day. Could it be a size issue?  AERS already on the small side with a market cap of £260 million (total assets of over £500 million), so too Gore Street Energy Storage (GSF) on £288 million (total assets of over £500 million), but the other three all have sub-£100 million market caps and total assets of between £100 – £200 million. Are they just too small to register on the radar of larger peers – not big enough to move the needle and all that

And don’t forget it was only on 9 September that RNEW announced its own strategic review had failed to find a buyer for its assets and that it too would be proposing a managed wind down of its own. Looks like some sub-scale funds might just be too small to be of interest to the big players. And if that’s what the market thinks then share prices could lose any potential bid froth they may have once had baked in. Take away any takeover excitement/potential and share prices may well lose a prop and discounts could widen. Now, having just said that, what price a renewables takeover announcement hitting the screens in the next few days to blow this theory out of the water ?

The top five

Fund	Discount	Sector
Ceiba Investments CBA	-69.64%	Property
HydrogenOne Capital Growth HGEN	-63.13%	Renewables
Life Science REIT LABS	-60.63%	Property
Schroder Capital Global Innovation INOV	-53.63%	Growth Capital
JPEL Private Equity JPEL	-50.34%	Private Equity

The full list

Fund	Discount	Sector
JPMorgan Emerging Markets JMG	13.17%	Emerging Markets
European Opportunities EOT	12.18%	Europe
Schroder Capital Global Innovation INOV	53.63%	Growth Capital
JPEL Private Equity JPEL	50.34%	Private Equity
Life Science REIT LABS	60.63%	Property
Ceiba Investments CBA	69.64%	Property
Atrato Onsite Energy ROOF	28.97%	Renewables
Ecofin US Renewables RNEW	45.92%	Renewables
HydrogenOne Capital Growth HGEN	63.13%	Renewables
Gore Street Energy Storage GSF	45.27%	Renewables
JPMorgan American JAM	-5.79%	U.S.
Vietnam Enterprise VEIL	22.84%	Vietnam