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Plug Power: Facts offer little hope

By Sven Jösting

January 16, 2024

Image titel: USV system by Toyota with GenDrive inside

Sources: Plug Power

Plug Power: Facts offer little hope

The turnover in the amount of 198.7 million USD in the third quarter lay considerably below expectations, the loss per share amounts to a minus of 0.47 USD per share with the expected minus of 0.30 USD per share – in the negative sense. The loss for the first nine months of the financial year lies over 725 million USD. But the cash on hand at the quarter end of still only 567 million USD is rather irritating, as the board always spoke of sufficient liquidity.

It is now certain that at least 500 million USD in new liquidity – in the short term – must be obtained in order to be able to adequately finance all projects, is the opinion of the specialist analyst from Morgan Stanley, Andrew Percoco. This then puts further pressure on the share price – if it happens, – since institutional investors want a discount on the entry price.

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Has the Plug Power management overestimated themselves and started too many projects at the same time? There’s talk of seven to nine giga-projects (production facilities for FC stacks, electrolyzers, hydrogen, cryogenic technologies, etc.) in the USA and four others around the world. For this, the capital drain is very high. At the same time, certain regulations are not yet in place. And the credit expected from the Department of Energy (DOE) as part of the Inflation Reduction Act in the amount of 1 to 1.5 billion USD not be ready until 2024 at the earliest, as there are extensive tests and conditions involved.

Plug itself does not yet produce liquid hydrogen, but buys it on the market. This has led to further problems, as it is associated with high costs and losses. Parallel is the frozen cash of over one billion USD (restricted cash), which in turn, in my estimation, could be connected with the major customers mentioned here.

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Tight liquidity situation

Still only 567 million USD was the amount of cash in the bank for Plug Power at the end of the third quarter. The many parallel projects, however, require further financial support before sales and the associated profits can be generated. That will take some time. The hyperboles uttered under CEO Andy Marsh to influence the stock exchange via investor relations are backfiring.

It is now to be expected that Plug will attempt to raise new equity by issuing shares and/or convertible bonds, which in view of the figures will no longer be so easy. Based on current share prices, any major capital increase (share issue) will only be possible at low prices. The board has stated a number of internal problems, from the situation with the purchase of hydrogen to delays in the start-up of production facilities as well as problems with supply chains.

The strong order intake in the electrolyzers segment may be reassuring, but it should be feared that competition will increase sharply, causing profit margins to shrink. Direct quote from the company: “Unprecedented challenges in the supply of hydrogen in North America.”

Short Interest

This figure – in December 158 million Plug Power shares – I always look at very closely, because it shows in which form speculation against a company and its share price is taking place. If the news is good, a price turbo (squeeze) could come about, but in Plug’s case it shows that the short sellers are correct in their assessment. I assume, though, it’s exactly big customers such as Amazon and Walmart who may have hedged their option rights via short selling. Both together have received over 100 million of these rights as a gift and can change them with very low conversion rates into shares. Theoretically, both have several billion USD (book) profit in their books if they go short at 70, 60, 50, 40, 30 USD per share – their purchase prices were are about 1.29 to 13 USD per share via exercise of the warrants. But that’s just a guess on my part – no guarantee.

I have always been critical of this deal because Plug has “baited” customers with it. And restricted cash of one billion USD is directly related to these major customers. The reason: This involves guarantees, warranties, security for technical support, spare parts and much more. Plug Power must provide such guarantees to customers such as Walmart and Amazon so that it can soundly implement orders, meaning operates H2 refueling stations for forklift trucks and ensures that there is always enough hydrogen available. The result is around one billion USD in restricted cash, frozen financial resources that cannot be used in any other way. Will companies like Amazon remain forever exclusive customers Plug Power regarding forklifts and their H2 refueling stations? The question arises because there are fewer orders from Amazon for the retrofitting of forklift trucks. Why?

Plug loses power-to-X project in Denmark

Via the consortium partner Plug Power Idomlund Denmark, Plug had actually been awarded the contract for the first power-to-X project in Denmark with a total of 280 MW of electrolysis capacity over six projects in its pocket. Then came the setback on November 20, 2023: Plug did not manage to provide a bank guarantie within the specified timeframe. It is probably about 28.3 million euros – no guarantees.

Summary: I had advised restraint until the figures for the third quarter were on the table. They are now here, but a buy still does not present itself, because it will still take time until the company creates clarity. On the contrary: Wait and see. Traders, however, can become active, since price fluctuations driven by the news will remain very high (high volatility), because the stock market has already severely punished the company (minus 40 percent alone on Nov. 10, 2023).

The question also arises as to whether Plug Power cannot avoid including partners in some projects, as it has already done with Fortescue. But that would come at the wrong time, because the possible conditions would be determined by the partner and investor rather than Plug Power itself. Will assets now possibly even have to be squandered?

In short: There is currently no need for action, because the expected figures for the current fourth quarter could again be disappointing. In 2024 and in the following years, however, the positive turnaround may come, when Plug has realized the in-house production of hydrogen on a large scale and benefited here from the Inflation Reduction Act, among other things, and also made good money with it. A DOE loan can be a game changer, but it takes time. There is no guarantee of this, even if it can be assumed that the Biden administration will not abandon prestige projects and players like Plug.

Further issues of shares are now even considered necessary and will not be implementable at ideal conditions. Six analysts have already radically changed their assessment – in a negative sense. I didn’t think my forecast would come true so quickly that the value of Bloom Energy would exceed that of Plug Power. Unfortunately, buy on bad-news is not yet suitable here. A buy limit for buying the share at three euros would be a first step. This stock is contemplatable if Plug offers institutional investors a discount on the purchase of new shares as a concession – as a risk discount.

Disclaimer

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.

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