With US$ 5 billion in the bank, Plug can position itself perfectly in the hydrogen and fuel cell theme complex. This includes its own H2 production as well as the development of alliances, such as the most recent one with Renault. And it is advisable – in my opinion – to reduce the one-sided focus on the market for forklift trucks (material handling), since the major manufacturers such as Toyota and Kion are pursuing their own hydrogen strategy in the future and the devices of future generations will already have a fuel cell system included, so that the conversion or expansion of a battery is not necessary.
Major customers like Walmart and Amazon have also shown that they are smart partners (supposed billions in profits from warrants), giving Plug orders but leaving many costs and risks with Plug as well. The sector of H2 filling stations is exciting, as Plug has extensive know-how here and should enter production or could plan to do so (comparable to companies such as Nel Asa), because a very large market is foreseeably emerging here, which is only just beginning. One positive aspect is that top talents are bought in, such as David Mindmind, who was responsible for setting up production in Nevada at Tesla. He is now Head of Global Manufacturing at Plug.
Plug has entered into a Purchase Power Agreement (PPA) with Apex Clean Energy – a leading operator of wind and solar parks in the USA (not to be confused with the Rostock-based Apex Group) – to supply 345 MW of wind power for the joint production of hydrogen. This first project will certainly be followed by others, as Plug plans to produce first 500 and then 1,000 tonnes of hydrogen per day itself in a few years.
Reports on the second quarter
Orders for the conversion of forklift trucks (battery out, fuel cell system in) are not as relevant to me as it is portrayed. This is because these incoming orders (billings) have so far come mainly from companies such as Amazon or Walmart and have so far not had a convincing profit margin, but have mainly served to symbolically represent large orders. The only thing that is important is whether a profit is made with the hydrogen, the consumable (liquid, gaseous), which is produced by the company itself in the future. I wouldn’t see Billings as the main reason for investing in Plug, even though that always sounds huge. At the end of the day, what counts is what is earned. Plug has to prove that the business model is profitable – as simple as that. For 2021, US$ 500 million in billings are to come, and then US$ 750 million in 2022. In the second quarter, turnover was US$ 124.6 million. The bottom line was a loss per share of US$ 0.18 (a loss of US$ 0.07 per share was expected).
Conclusion: At US$ 5 billion, Plug’s positioning in the hydrogen market is well represented. This includes the development of its own production and infrastructure (H2 filling stations) as well as new growth impulses through its own electrolyser production. Some additional acquisition will certainly come along – I would see an investment in Nikola Motors as a target for Plug. Among other things, a joint H2 filling station network could be set up and, in addition to the plans for vans, large commercial vehicles, where hydrogen is becoming a very big issue (bigger than for light trucks or vans) (source: McKinsey), could be added.
With a current stock exchange valuation of more than US$ 15 billion, the company has achieved a positioning in line with its growth prospects. I readjust my thinking when the company delivers new impulses or transfers the liquidity into high-yield projects. Analyst Colin Rusch from Oppenheimer sees the share at US$ 62. The average target price of most analysts is US$ 42.63, on the grounds that Plug – now planning its third H2 production site – is well on its way to being able to produce 75 tonnes of hydrogen a day itself.
Every investor must always be aware of his own risk assessment when investing in shares and also consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid caps, i.e. they are not standard stocks and their volatility is also much higher. This report is not a buy recommendation – without commitment. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on a medium- and long-term valuation and not on a short-term profit. The author may be in possession of the shares presented here.
Author: Sven Jösting, written August 12th, 2021