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Can Plug deliver all that was advertised?

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July 14, 2022

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Can Plug deliver all that was advertised?

EuroHuge news has reached us regarding Plug Power: H2 Energy Europe has contracted Plug for an electrolysis capacity in the amount of 1 GW. A complex is to be built in Denmark and the regenerative electricity generated via wind power. The goal is to produce 100,000 tonnes of green hydrogen per year, which is to be used primarily in hydrogen-powered trucks, specifically to fuel 150,000 of them per day.
The Swiss company H2 Energy has joined forces with the US oil company Phillips66. They are to build 250 H2 fueling stations across Denmark, Germany and Austria. In addition, FC trucks are to be acquired. Construction of the plant is scheduled to start in 2024; hydrogen production in 2025. In Belgium, 100 MW of electrolysis capacity is to be built in Port of Antwerp. It is unclear so far whether these are orders that can be valued (investment/order volume) or if Plug is a co-operator in this and itself will invest. Other projects planned are in Egypt (100 MW) and, with billionaire Forrest of Fortescue, in Australia (1 GW). A lot about it seems much too “giga” to me.

Regarding the first quarter: The stated loss turned out to be a remarkable 156.5 million USD, making it clear that Plug will have to invest a great deal in order to achieve its ambitious goals. The turnover also rose considerably, to 140.8 million USD (over 90% increase from the same period of the previous year). A minus per share of 0.27 USD (0.11 USD higher than expected – the analysts’ consensus). The high increase in price of the natural gas for the production of the hydrogen, which Plug probably still purchases itself, created increased costs. By the end of the year, however, the company’s own hydrogen production should reach 70 tonnes per day (one third of the current cost). In the plans are an electrolysis capacity of 1 GW.

Side note: The payment to the management board (including option rights) in 2021 was a considerable 52 million USD, after the 13.6 million USD in 2020 and 3.7 million USD in 2019. For a company with such high losses, this is relatively generous compensation in relation to the turnover and perhaps should be scrutinized.

Summary: Investment banks see the share at 21 USD (27 USD according to Truist Securities) to 45 USD (Evercore ISI). The company has positioned itself very well in terms of PR and IR (IR = investor relations) and has a large following of fans, so the share in the hydrogen domain has reached good visibility. Only the very high investments to be expected will cause the capital base to melt away and result in logical losses before Plug will earn money with hydrogen. That should be taken into account when making an investment. Further share issues for the various projects are very conceivable. Higher share prices are needed for this – if that’s the case.

Warning
Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. 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 medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.

Author: Sven Jösting, written June 11th, 2022

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