Cavendish has initiated coverage of the two listed battery storage funds with split ratings, favouring Gresham House Energy Storage Fund PLC (LSE:GRID) for its growth ambitions while flagging concerns over Gore Street Energy Storage Fund PLC's (LSE:GSF) plan to return capital.
The broker rates Gresham House a 'buy' and Gore Street a 'hold', framing the pair as contrasting bets on the same asset class.
Gresham House, which owns a fleet of British battery projects, is prioritising reinvestment over dividends as it looks to almost double portfolio capacity, largely funded by debt.
Cavendish said constructing the roughly one gigawatt pipeline over the next three years could create more than 50 pence per share of value, with the build-out requiring minimal new equity thanks to innovative financing and a partnership that reduces its funding needs.
The broker argued that the 28% discount to net asset value significantly undervalues the growth potential.
It also flagged Gresham House as a possible takeover candidate, noting its British-only portfolio could see it follow Harmony Energy Income, which was taken private last year.
The risk, Cavendish cautioned, is that the heavily debt-funded strategy relies on battery valuations holding firm, with the net asset value needing to roughly double by 2029 to stay within gearing limits.
It noted that delays remain a real possibility, with a backlog of British projects all reconnecting to the grid at once following connection reform.
Gore Street, by contrast, is returning significant capital through a 7 pence annual dividend, much of which must be funded through asset disposals.
Cavendish said disposals totalling 40% of net asset value, with 60% of proceeds returned through dividends, looked very much like the start of a wind-up, particularly with activist investor Saba having built a 15% stake.
The broker views a gradual managed realisation, selling assets after extracting value through augmentations, as the likely path rather than a quick wind-down.
It described the strategy as conflicting, arguing the dividend reinstatement sits awkwardly against both the growth opportunity and the defensive need to extend the duration of Gore Street's shorter portfolio.
Cavendish flagged particular concern over revenue in Gore Street's US markets, where performance in California and Texas has fallen well below expectations, raising questions over asset valuations there.
It now estimates Gore Street could generate £30 million to £40 million once all projects are operational, against the £72 million the manager had earlier suggested.
The broker said Gore Street's 45% discount offered some headroom against further falls, but expected the shares to languish until disposals succeed or revenues recover.
