The major international gas companies such as Linde, Air Liquide and Air Products have always been active in the field of hydrogen, but so far with the industrially demanded “gray” hydrogen based on natural gas. In addition, the hydrogen molecule is essential for many derivatives and chemical compounds. The trend is now increasingly moving towards green, so regeneratively produced, hydrogen. And also and directly here the three companies mentioned are positioning themselves, by establishing very large electrolysis production capacities worldwide and entering into strategic alliances in countries that are ideal for it, because the conditions there (high solar radiation, wind power and hydropower, and water, especially seawater) could not be more perfect.
The main focus there is on blue hydrogen, which can be produced cost-effectively by reforming natural gas and which, through storage (CCS & CCUS) but also through industrial use of carbon, has a lower carbon footprint. On top of this is the very weighty argument that they can additionally benefit from various subsidy programs, be it in the EU or in the USA with the Inflation Reduction Act.
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On the stock market, some of these bright prospects have already been reflected in the share price performance and valuation, but there are differences that could be made use of, since Air Products & Chemicals, in contrast to Air Liquide and Linde, has not yet really participated in the run. Hence the recommendation to bet on the latecomer:
Company Valuation Turnover PE ratio 24 Dividend yield Linde 185 billion USD 36 billion USD 37 0.9 percent
Air Liquide 99 billion USD 33 billion USD 33 1.8 percent
Air Products 52 billion USD 12,7 billion USD 24 3 percent
Air Products & Chemicals
The company is relying heavily on hydrogen and ammonia, to serve long-haul traffic with the latter. In Hamburg, it has joined forces with the globally active petroleum and chemical trading company Mabanaft (subsidiary of the Marquardt & Bahls Group, which operates a global storage facility for all types of petroleum products, including kerosene for aircraft, and its own network of refueling stations) and is planning an ammonia processing plant (cracking) with an investment of over one billion euros in the port Hamburger Hafen. But first it’ll entail blue hydrogen, which is to find its way to Europe, and from countries such as Saudi Arabia, where they are working together on the project Neom Green Hydrogen and where Air Products & Chemicals was able to land an order volume of 6.7 billion USD.
A look at the charts shows that Air Products & Chemicals is not far from last year’s lows, whereas Linde and Air Liquide have reached new highs. As a group, these shares will continue on their path, but, as a latecomer, the share of Air Products & Chemicals appears the most favorably valued. The quarterly dividend was recently increased to 1.77 USD per share. First price target: 300 USD.
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.
The share of Cummins Engine brings joy: The share price rose to a new high for the year, after the company was able to settle a long-standing legal dispute – it was about non-compliance with emission standards for engines – with a penalty payment of 1.6 billion USD, and with that this chapter is closed. The total cost of this settlement was 2.04 billion USD. Regarding the value per share, Cummins earned a good 19 USD in year 2023, if including the abovementioned costs. So it was about 6 USD per share.
The dividend remains at a high level – recently 1.68 USD per share in the quarter. Turnover increased by ten percent to 34.1 billion USD in year 2023 and should also further grow in the future. The subsidiary Accelera, which concentrates on the clean energy business (engines, batteries, fuel cells, electrolysis, etc.), was able to increase turnover to 354 million USD and should in the current fiscal year bump this up to 450 to 500 million USD. This area belongs, via the program Destination Zero, to one of the company’s future fields of focus and requires considerable investment. This division will therefore report a loss this year of 400 million USD, which, however, has its logical basis in the high initial investments. Even so, Accelera alone was already able to build up an order volume for electrolyzers of 500 million USD. The spin-off of the subsidiary Atmus Filtration Technologies to the shareholders (swap offer) is also about to be finalized. Cummins holds over 80 percent in this. The company will be valuated with 1.9 billion USD.
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New engine development HELMTM
A share price driver, however, can be the development of a new generation of engines. These units, based on the X15 engine platform, can be operated with natural gas as well as with hydrogen (starting 2028) and e-fuels. HELMTM stands for high efficiency, low emission, multiple fuels. They should accordingly contribute to significantly reducing the diesel demand of today’s customers. Test runs are underway with Walmart and UPS, and also with Paccar for its US class 8 truck Kenworth T680. Cummins is investing 1 billion USD in this project for the time being.
At the current price level – the company has a market capitalization of about 39 billion USD – the current valuation seems sufficient to me, where Cummins is considered a standard stock with a high dividend yield. I would now remember and rather bet on the comparable competitor from China, Weichai Power, as this company is only half as highly valued as Cummins and additionally owns a special potential in the area of hydrogen and fuel cells. Cummins but will go its own way in hydrogen. The subsidiary responsible for this, Accelera, has very high growth potential, which will have a positive impact on the company as a whole in a few years’ time.
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.
The main shareholders Bosch and Weichai are already counting on the English Ceres Power and their high-temperature fuel cell systems or their patents and know-how. With the South Korean Doosan Fuel Cell there is a license agreement and the planning of a joint FC production. Now, US company Delta Electronics is joining as a partner, which boasts a turnover of around 23 billion USD (over 80,000 employees) and recently closed a license agreement on the production of FC stacks for hydrogen production in the volume of 43 million GBP with Ceres Power, half of which will be counted towards the turnover for the current fiscal year. Delta will produce FC stacks on a license basis for various applications and markets at its 200 production sites worldwide. The company works with, among others, Microsoft and Tesla.
For us, it is interesting to see that Bloom Energy as well has bet very successfully on high-temperature fuel cells developed in-house (microgrids) and thus makes various energy sources such as natural gas, biogas and hydrogen usable. Bosch too addresses this market segment – among other things via a cooperation and license from Ceres.
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The share price of Ceres, like all other listed FC companies, has suffered greatly in recent years, but seems to me to have reached a price level at which one should build up positions. The partnerships with large companies allow the expectation of sustainably high revenue from licenses and sales, without Ceres having to strongly invest in the build-up of production capacities. Conclusion: A good portfolio addition in the area of FC and H2 technology.
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.
#Shares from the crypto universe and from many technology companies are currently reaching new highs. Armaments are also booming on the stock market in view of the many global, some war-like, political conflicts. Only the topic of hydrogen and fuel cells is still leading a shadowy existence, with prices at crash level, which however – still – fully obscures the prospects of sustainably produced energy, and above all of hydrogen.
The stock exchange also always works according to the principle of group rotation, according to which always exactly these topics slide back into the focus and center of investor interest that have been completely neglected up to now but have excellent prospects. Precisely why I expect that, after almost three years of falling share prices, the trend will now gradually reverse and a sustainable, long-term upward trend on the stock market is beginning that is based on very high company growth.
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To many market participants, it is unclear at this time how hydrogen will be available in large quantities, although it is already clear today that production volumes will increase enormously and prices will fall. All this, however, doesn’t happen overnight: Gigantic capacities in electrolyzer technology – PEM, AFC, AEM, SOFC – must arise to be able to produce sufficient hydrogen.
Hydrogen economy is on its way and will come!
“The H2 economy is on its way and will come,” was the conclusion of the H2-Forum in Berlin (Feb. 19 and 20, 2024, see p. 20). One speaker explained that we’ve now come, after overinflated expectations, “out of the valley of the dead” and on solid ground. Now, it’s all about assessing risks and partaking in concrete projects, which would mean investments in the whole area of hydrogen. From talk to action.
If we take a visionary look into the years 2030, 2035 and 2040, it’s clear what technologically needs to be on course today. Green and, temporarily, blue hydrogen (produced by natural gas reforming – 70 percent less CO2) will dominate and replace gray hydrogen from natural gas, eventually CO2-freely. Regeneratively produced hydrogen will be a raw material that receives a market price as a commodity on the stock exchange. Those producers who have large quantities of low-cost renewable energy (solar, wind and hydropower) at their disposal and have the necessary access to water (above all seawater) will get a tradable commodity that they can sell on the world market, with high profit margins, or use themselves.
In the last case, it can be observed that countries with ideal framework conditions are increasingly thinking about using the hydrogen produced locally themselves, by setting up corresponding industries, instead of selling it to countries like Germany, as energy is a very important location factor.
Hydrogen and the stock market
In countries such as China and individual regions like the US state of California are developing hydrogen strategies that have model character and can serve as a blueprint for the world. In China, over 1,200 H2 refueling stations are to be in operation by 2025. Currently, it’s about 400. South Korea wants long-term to establish more than 1,600 H2 refueling stations in the country. Here in Germany are, as before, around 100 in operation.
Companies with capacities for fuel cell stacks and modules for commercial vehicles are in the starting blocks (Bosch, Cummins, Ballard, Hyzon, Toyota, Hyundai, etc.), because these markets will be huge. Several million trucks and buses can be assumed to be converted to battery or fuel cell (also in combination) in the next ten to twenty years. Hydrogen engines are also attracting a lot of attention, as various prototypes have already been developed (Bosch, Cummins, Toyota).
The question of the right H2 shares can be answered well with this context, as primarily companies will win that have a mature technology, operate with robust business models, are able to deliver and possibly profit from the consumable hydrogen itself, if they can produce it themselves at low cost or distribute and use it as a commodity.
Here beckons the prospect of a good profit margin with high growth potential. On the stock exchange, however, there is right now in the area of hydrogen a phase of disappointment, as firstly everything is not going so quickly and secondly setbacks must also be overcome. In addition to questions of implementation speed, there are often also regulatory issues on the timeline. That the stock market has not yet recognized the potential of the companies through their share prices and valuations is easy to see from the current prices. There is no question that there will be a complete reassessment, however, even if it will take longer. Be patient. We are only at the beginning of this new mega-trend – also on the stock exchange. Let’s wait for the group rotation; then, everything will happen very quickly.
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.
Bloom Energy is planning a cooperation with Shell to use its SOEC technology for the large-scale production of hydrogen. Bloom points out that they’ve already performed very successful series of tests with the Ames Research Center of NASA in Mountain View: 2.4 metric tons of H2 per day were able to be produced there – best performance in terms of energy input in relation to hydrogen output and thus far superior to PEM and alkaline electrolysis.
Bloom Energy reports for the fourth quarter of 2023 a turnover of 357 million USD, although they expected 450 to 500 million USD. That makes it 1.33 billion USD for the entire year 2023, when it was to be 1.4 to 1.5 billion USD. The non-GAAP profit margin is expected to be 28 percent in 2024. However: 160 million USD of the missing turnover is on account of a billion-dollar framework agreement with the South Korean SK Group, which is also the largest single shareholder in Bloom. Annual targets for projects and the associated revenues (orders) were defined here, which came out 160 million USD less than expected in year 2023.
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These revenues will only be realized with a delay, namely starting 2024. Now, there is a new contract that runs on a quarterly basis and therefore – according to the chief financial officer – is much more calculable, as minimum sales per quarter have been defined. That the stock market is disappointed by the development in 2023 is obvious. On top of that, the growth in the first half of year 2024 will come out lower than expected, until things really get going again in the second half of the year. For 2024, a turnover target of 1.4 to 1.6 billion USD has now been set – it originally should have been over 1.8 billion USD. But – and this is positive – the non-GAAP profit is expected to lie between 75 and 100 million USD this year. Negative is that CFO Greg Cameron is leaving the company for personal reasons. This is truly a cocktail of “short-term” negative news, which may soon be forgotten in view of the prospects.
“Our full expectation for Bloom is that it will leave 2024 with a bunch of commercial momentum, both in winning deals as well as delivering on systems.”
Leaving CFO Greg Cameron
There is an orders on hand of 12 billion USD (backlog: 3 billion USD in hardware and 9 billion USD in long-term service contracts). The company with its Energy Servers is very well positioned and has a leading position in high-temperature electrolyzers, which will come onto the market in 2025 – initially with a capacity of 2 GW per year and a strong sales growth, likewise starting 2025.
Test series, including in the Idaho National Lab, were extremely positive, it was stated at the press conference on company figures. Nearly 750 million USD cash in the bank is a healthy self-financing cushion. Not until August 2025 must 250 million USD in debt be cleared. With higher share prices, it should not be a problem then to issue new shares and replace foreign capital with own capital. More important is the look at the company’s profit: That came out very well, with a plus of 27.4 million USD as non-GAAP profit in the fourth quarter 2023.
The goal is clearly defined: In 2024, the profit margin is to be increased through cost management, higher margins in the service area and price discipline. Material costs are set to fall significantly this year to avoid supply chain problems. The production facility in Fremont, California has a capacity of 700 MW per year, which can easily be doubled. In addition, new business models (energy on demand 24/7 and heat & power) and many innovations will characterize the new fiscal year. Clear is that AI as well as the increasing electrification will not allow, like before, an energy demand of around AI and increasing electrification will not allow energy demand to rise by 0.5 percent per year, like before, but by a factor of ten, according to CEO KR Sridhar. The missing grid expansion will therefore promote island solutions, like what Bloom offers.
In the USA alone, 90,000 miles of high-voltage power lines would have to be built to transport the required energy. In 2022, it was just 700 miles in the USA. The risk of power outages and a lack of energy availability thus increases considerably. This applies not only to the USA, but also to many industrialized nations. Whereas in the past it was often about the price of energy, now it is about the availability and security of supply, since a loss of power can lead to enormous damages.
All this plays into the hands of Bloom Energy, said Sridhar. The demand for stand-alone solutions, for example for data centers, is enormous. Talks are being held with all important and leading companies in the industry. The talk is now always of gigawatts and no long of megawatts. Many an AI company has already received a message from its energy or electricity supplier that the desired amount of energy cannot be produced. In addition to these so-termed greenfield data centers, which basically form from scratch, are coming newly planned microchip production facilities, charging stations for commercial vehicles and logistics centers.
Here, Bloom is counting on its rapid project implementation (“rapid deployment capability”) and flexibility. Numerous orders are expected here by 2024. Furthermore, waste heat from data centers via net-zero stream and net-zero cooling will be used for process heat and be a CO2-free waste product. With these solutions, Bloom can support energy suppliers by providing energy flexibly, cleanly (50 percent CO2 reduction), 50 percent more cheaply and five times faster than ramping up gas turbines. Thus Bloom is also becoming a partner to energy suppliers.
Dr. Ravi Prasher was able to be gained as the new chief technical officer (CTO). He is, among other things, a member of the prestigious association National Academy of Engineering. He is to turn business opportunities into concrete orders. He comes, like so many board members at Bloom, from General Electric (GE), where he worked for 20 years. He sees the high-temperature fuel cells of Bloom as a game changer, with which no SOX, no NOX and no CO2 emissions are produced during the combustion of hydrogen. Bloom could, according to Prasher, solve all the problems that many industries have with their energy use. In addition, Bloom’s electrolysis technology is the most efficient on the market.
General remarks
To various special analysts of notable banks Bloom has pointed out that some projects are delayed, as potential customers often need more time than planned to develop the spaces for data centers (approval procedure) or to clarify financing issues. This does not directly have anything to do with Bloom, but must be taken into account in the schedule. In addition, more attention will be paid to customer payment management. Accordingly, the second half of the year will be significantly more robust than the first half, it was said: 60 versus 40 percent in the second half of the year.
Potential not yet priced in
Starting 2025, the new market for high-temperature electrolyzers will generate further growth potential. Among other things, this technology will be used in four of the seven planned Energy Hubs of the Biden administration. As the outlooks are good and Bloom offers the right technologies for safe, clean and available decentralized energy solutions, the stock market will not be able to avoid anticipating all this in the share price. This will also result in a number of major orders this year, which, however, will only be included in the balance sheet from 2025 onwards due to the timing of implementation. For analysts, this is then the basis for upgrading the share – from “hold” to “buy” or “strong buy.” The current price weakness will soon pass and will be forgotten if Bloom – and this is expected – can book corresponding orders this year. The potential of shares from the electrolyzer sector will come on top of this.
Strongly depressed prices are clear buy prices
With a stock market valuation of only 2 billion USD an undervaluing has been reached that could even make Bloom a candidate for takeover. GE or Siemens Energy should take a close look at the company, as the SK Group has done: participation and joint project development. It would be better if the stock market were to correctly assess the prospects and quickly forget the current undervaluation. Year 2024 will be a transition year with weaker growth, but this will be followed by many years of very strong growth, which can be inferred from many of the statements made at the press conference for the fourth quarter of 2023 and the year as a whole. Important is above all that Bloom is well on the way to becoming profitable. For 2024, the previous CFO was targeting a non-GAAP profit of 75 to 100 million USD.
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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