Sunday, 27 December 2020

Nel Hydrogen - Portfolio Addition


Over the past year or so I have been following a range of companies which focus on green hydrogen. I have added some of these to my green portfolio and seen some spectacular returns in a very short period. This has given me the confidence to add more and diversify this part of my portfolio, often with taking part profits from existing holdings.

One such recent addition has been NEL ASA, a Norwegian clean energy specialist listed on the Oslo exchange and also the Frankfurt exchange. It's operation covers the whole hydrogen chain from production via electrolysis through to storage solutions and the provision of hydrogen fueling stations. It is the worlds largest manufacturer of green hydrogen electrolysers with deliveries to over 80 countries and provides the solutions for the transition to clean energy with its proprietary H2Stations.


Results

As with most of these hydrogen companies, Nel is not yet profitable but is investing heavily to grow the operations and frequently places new shares to raise capital for investment. Obviously over the past year it has been affected by Covid but according to the latest Q3 report (pdf), revenues of 147.7 NOK are in line with the previous year (148.9). However the order backlog is up 63% YoY and cash balance has increased from 651 NOK to 2,543.

Jon André Løkke, CEO of Nel, said, "The markets in which we operate continue to show high activity and strong growth momentum, in addition to significant governmental interest for developing green energy infrastructure and industries post Covid-19.

While our short-term operations, production and installations are affected by the pandemic, with the financial performance in the third quarter in line with our outlook, the adoption of green hydrogen and industrial hydrogen applications continues to accelerate."

The market for clean hydrogen is expected to grow significantly over the coming decade and beyond as the world turns to zero emissions fuels for energy, transport and to decarbonise many aspects of industry currently powered by coal, oil or gas. The EUs new hydrogen strategy suggests that hydrogen could account for a quarter of the world's energy needs by 2050 and analysis suggests the market could grow at least 10-fold and drive annual revenues to over $1 trillion. Germany has pledged to instal 5GW of green hydrogen capacity by 2025, France 6.5GW and S Korea 15GW by 2040.

The likes of Nel (and UK-listed ITM Power, Ceres Power etc.) are likely to benefit from this transition. Nel was one of the first companies to roll-out commercial electrolysers in the 1970s and has now provided over 3,500 worldwide. In addition to production, Nel is a leading manufacturer of hydrogen fueling stations for fuel-cell cars, buses, lorries and forklifts.

One year share price

Earlier this year, the company signed a $30m deal with US truck company Nikola. On the back of this deal, Nel decided to build a megafactory in Norway to scale up manufacturing. Nel purchased 1.1m shares in the US company. Unfortunately soon after this deal was agreed Nikola founder resigned under a cloud of and is currently under investigation. Although the deal with Nikola is still on the cards, there is now a greater degree of uncertainty. The shares took a hit as a result but have since recovered momentum but I missed an opportunity to pick up some shares on the cheap.

Conclusion

Despite the disdain shown by Elon Musk for anything hydrogen, fuel-cell technology is rapidly gaining acceptance with governments and policy makers as the best decarbonisation solutions for heavy transport - trucks, shipping, trains and even aircraft. Unlike battery-powered vehicles, hydrogen fuel cells are relatively light and also can be refueled in minutes rather than the hours taken to charge a battery.

The shares have seen a strong surge in recent weeks as investors start to appreciate the potential for green hydrogen solutions and there may well be some pull-back/profit taking. However longer term I am hoping there will be much more to come as the US rolls out its green new deal under the Biden administration and Europe pushes ahead with the transition to a greener economy.

However, electrolysis is just one way of producing hydrogen. It will require investment from governments and large global companies like Apple and Google to scale up production and bring down costs and there may be other ways to make clean hydrogen as the transition gets underway so I will continue to hedge my bets with the likes of Ceres, Ballard and Plug Power for example.

Market cap is approx £3.2bn. The shares were purchased last week in my ISA at €2.50 (around 230p at current exchange rates).

More on this following the full year results due February 2021.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!

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