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FuelCell Energy – Carbon capture as a growth story?

FuelCell Energy – Carbon capture as a growth story?

FuelCell Energy has with SOFC fuel cell power plants built its own capacities for clean energy totaling 62.8 MW (previous year: 43.7 MW). The company’s own high-temperature fuel cell serves as the basis for use in electrolysis, where the company has recognized great potential for itself. Along with that are various research projects, among others in Canada, and the company relies on specially developed carbon capture technology that is designed to avoid emissions and generate emissions-free energy at the same time. So far, so good. But you can’t avoid thinking of competitors such as Bloom Energy, Sunfire and Ceres Power (indirectly also Weichai Power and Bosch), which pursue similar visions and technological approaches to FuelCell Energy.

What all this means in terms of order and implementation potential is unfortunately not yet clear to me. The figures so far are sobering: The first quarter (fiscal year 31.01.24) brought a loss of 44.4 million USD. Turnover fell in the quarter to 16.7 million USD. Of liquidity, the company has no lack: 348.4 million USD was in the bank January 31, 2024. However, there has been a constant outflow of capital for years, aided by constant share placements on the stock exchange via an ATM program. Projects such as that with Exxon in Holland sound promising, but say very little about the potential. In South Korea, former partner Posco, via its subsidiary Korea Fuel Cells, forfeited the option of further orders in supplement to a previous project. Not a good sign.

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Joint venture with ExxonMobil

At first glance, it sounds promising: FuelCell Energy and ExxonMobil have agreed to build a production plant for carbon capture in Rotterdam. It entails the avoidance of CO2 emissions or the storage and making usable, without generating a carbon footprint. CCS stands for carbon capture and storage. After successful deployment directly in the neighborhood of important industries, the project that is based on the technology of FuelCell Energy could be deployed at all production sites of ExxonMobil where CO2 emissions are generated. The process is to generate heat as a by-product and enable the production of green hydrogen.

Unfortunately, there is no indication of the exact investment volume (invest on the part of FuelCell Energy) and the order volume that can be derived from this. In any case, the project is financially supported by the EU via the Emissions Trading System Innovation Fund. ExxonMobil and FuelCell Energy have already been working on the associated technologies for some time, so this specific project represents another important milestone.

The cash cushion is safeguarding the share price well. The stock exchange will rediscover FuelCell Energy when it can be shown how technologies such as carbon capture and SOEC can generate orders and earn money. That will take some time. The share is always suitable for trading, as good news quickly leads to major price swings.

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.

Author: Sven Jösting, written March 15th, 2024

Cummins Engine – Emissions scandal ended by payment

Cummins Engine – Emissions scandal ended by payment

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.

Author: Sven Jösting, written March 15th, 2024

Ceres Power with strong partners

Ceres Power with strong partners

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.

Author: Sven Jösting, written March 15th, 2024

Group rotation will drive hydrogen forward

Group rotation will drive hydrogen forward

Sven Jösting’s stock analysis

#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.

Author: Sven Jösting, written March 15th, 2024

Ballard – Prospects better than current market valuation

Ballard – Prospects better than current market valuation

The share price of Ballard Power is at an all-time low. The published figures for the fourth quarter of 2023 and the entire year 2023 paint a contradictory picture. The future prospects outlined by the board, however, give cause for optimism. Turnover rose in the fourth quarter to 46.8 million USD – an increase of 132 percent compared to the same quarter previous year. Order intake in the fourth quarter amounted to an impressive 64.7 million USD, and the orders on hand (backlog) decreased slightly by three percent to 130.5 million USD, as Ballard received more orders to execute (deliver). However, the orders on hand fell by 21.7 million USD, as there were delays with one customer. This order has not been lost, but cannot yet be counted.

Total turnover in 2023 lay at 102.4 million USD, so the bottom line for the year as a whole was a loss of 0.48 USD per share. These are, however, all snapshots that obscure the company’s prospects, since important markets for fuel cells are only at the beginning of a long phase of strong growth. In the USA, Ballard is working on the construction of a new production facility, as recently announced. And in Texas: There, 20,000 FC stacks, to start, are to be produced per year as well as the MEAs. Investment volume: 160 million USD, and subsidies amounting to 40 million USD are beckoning. Do you build such a plant if you don’t believe in the future of your own technology and its market? By no means.

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FC buses really getting rolling

Impressive is the development in deliveries and incoming orders for FC modules for buses. An example: The bus manufacturer Solaris began its collaboration with Ballard in year 2013 with the purchase of two modules. In the following ten years, Solaris ordered 213 modules. In 2023 alone, it was already 365 modules. According to Ballard, this is just the beginning of a real wave of orders. Similar seems to be the case with cooperation partner for many years NFI: 141 modules in year 2023, which should only be the small beginning of the possible order volume, was the commentary.

NFI unites various bus brands under one roof such as New Flyer (70 percent market share for transit buses in the USA) but also Alexander Dennis (double deckers) and MCI. The annual production amounts to 8,000 buses. The partnership with Ballard has now been strengthened and already 100 FC modules ordered, to be delivered by 2024.

By year 2037, there are to be 650,000 buses globally, according to Information Trends, that will drive with hydrogen. In 2022, it was just about 4,000. Price parity for battery-electric and hydrogen-powered buses should be reached by 2030. Then, there should also be enough H2 stations and the price of hydrogen should be at parity with the price of diesel. Ballard is the clear market leader today and could remain so.

China – the giant awakens

The joint venture with Weichai for the production of FC modules for trucks and buses has still not really got going. Regulatory conditions and support programs as well as initiatives by individual provinces make Ballard confident that things will really get going soon. There, 20,000 complete FC systems (power range from 50 to 200 kW) per year can be built. That corresponds to an annual capacity of 2 GW in FC power. In year 2023, in China, 7,500 FC vehicles were sold – altogether 7,300 FC buses and 13,700 FC trucks. Through special support measures by the province Shandong (where the production is located), the JV will finally get started in 2024.

From the United Kingdom, Ballard has reported an order for 15 MW FC capacity. It entails 150 FCmove modules for an unnamed customer with which a letter of intent for another 296 FCmove modules with delivery by March 2026 exists. It involves off-grid electricity generation from renewable energies. At the same time, Ballard has reported the successful completion of test series for FC backup systems for data centers of Caterpillar and Microsoft. The last could be the basis for major orders.

Has the share price bottomed out?

The share price increase from 1 to 2 USD US-$ (2018 to 2020) to over 40 USD at the end of 2021 and the subsequent decline in the price to currently around 2.70 USD should now lead to a sustained upswing again. This describes the entire H2 ecosystem on the stock exchange: It starts with technological developments that lead to expectations on the stock market, which is reflected in the sharp rise in the share prices of listed companies in the sector.

This was the case at the end of 2021. Then, it came little by little to sharp falls in share prices, related to increasing disillusionment among investors. In accordance with to the Gartner hype cycle, the FC and H2 sector is now entering a long-term upward trend, as the markets are gaining momentum. With hydrogen, this entails production, transport, uses, markets, and much more. It is clear that this is a disruptive new technology and industry.

Combining this analysis with the long-term Elliott wave chart results in a picture in which the Ballard share is now bottoming out (a current sell-off as the end of the downward spiral), just at a time when investors almost no longer want to believe in the company’s success, which is expressed in the very low share price and the market valuation of about 0.8 billion USD with, at the same time, 751 million USD in the bank. Today we have real figures, if you only look at the more than 1,680 buses that drive with Ballard technology. The hydrogen costs per 100 km are sinking massively. The modules are also becoming increasingly competitive thanks to cost-cutting programs and material optimizations – also in comparison to battery-electric and diesel-powered buses.

If the cost of diesel fuel is on average 240 USD per day and battery-electric is 16 USD for electricity per day, then the fuel cell (hydrogen) is in between at on average 85 USD per day. The charging times of a battery-electric bus must also be taken into account, however, whereas vehicles can be refueled in just a few minutes with hydrogen or diesel. Especially for certain applications (with long distances, hilly terrain, weather influences), the hydrogen bus is superior to the battery-electric bus.

In addition, hydrogen is becoming increasingly cheaper. Whereas the average price per kg has been still around 10 euros up to now, an average of 6.48 EUR should be feasible in one to two years, in two to three years 3 to 5 EUR per kg, and in 10 to 15 years, so they say, it could even be as little as 1 to 2 USD per kg. The total cost of ownership for the hydrogen bus will fall massively, and diesel will need to be replaced.

Ballard is calmly focusing on the scaling of its technologies and the imminent ramp-up of important sectors such as heavy transportation. Already in the current year 2024, incoming orders for FC modules for buses are set to rise sharply, where the turnover is expected to be split 30 to 70 percent between the first and second half of the year. Order intake will have an impact on the share price, and the next quarterly figures less so.

Summary: Ballard is very well positioned in terms of its finances. With over 750 million USD liquidity, the company will be able to manage its future growth (expansion of existing capacities, geographical expansion) very well from its own resources. Key markets such as FC buses and trucks are in the starting blocks and will ensure very high growth for the company in the long term. That this all is taking longer than expected is normal for the development of a new market. The year of the actual breakthrough (profit zone) will be 2025/26, as the most important framework conditions (including availability of H2 infrastructure) will be created and the regulation as well as support programs worldwide (USA, EU and Asia) will take full effect in a positive sense. Ballard is likely to be one of the winners of this development. The year 2024 will be characterized by rising order intake. Buy and leave alone. Investment horizon: at least two to three years.

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.

Author: Sven Jösting, written March 15th, 2024