Wednesday, 3 June 2020

McPhy Energy - Portfolio Addition

In January I took a look at the global potential for green hydrogen and suggested it could transform the global economy.

Some of these companies which turn hydrogen made from water into a clean form of energy are having a stellar year and I expect there is much more to come from this sector.

I think the investing world must be waking up to the potential of hydrogen and the implications for the transition to a global economy which is no longer based on fossil fuels. Best performance over the year-to-date has been ITM Power which started the year at 71p and this week rose above 350p. Others in my green portfolio include Proton Power up 150%, AFC Energy up 90% and Ceres also up 95%. So far they have ridden out the Covid storm better than most other sectors.

Just in the past week, the EU announced a huge new deal totaling 750bn EUR which aims to transform Europe to a low carbon economy and the goal of net zero emissions by 2050. This will involve a 50% reduction in carbon emissions by 2030. The plan includes a central role for renewables, green hydrogen and zero emission vehicles. I have seen figures mention an allocation of 10bn for green hydrogen infrastructure and a further 30bn for production stimulus which would be truly transformational.

This prompted me to take a closer look at the sector in Europe and I decided to acquire a small holding in French company McPhy Energy.

The Company

This is a relatively small company - market cap approx £100m - listed in France. It also has manufacturing bases in Germany and Italy as well as a distribution network in Asia and the Americas. Since formation in 2008, its main area of business has been hydrogen production and storage solutions. Its products include a hydrogen electrolyser to split water and produce clean hydrogen and also sells solid-state hydrogen technology.

Earlier this year it was selected to provide the equipment for a 20MW green hydrogen production plant - the largest of its kind in Europe. The plant will produce 3,000 tons of clean hydrogen per year and reduce CO2 emissions by 27,000 tons.


In April the company secured two major contracts to provide zero-emissions mobility projects in the west of France. These projects will enable regional hydrogen mobility and convert surplus renewable energy to partially replace petrol/diesel in these regions. The projects underline the strength of the company's McFilling "starter kit" model which has previously been used in projects in major cities such as Paris and Rouen.

Results

In January the company reported strong revenue growth of 43% in 2019 - up to 11.4m EUR from 8m EUR in 2018. The company is well capitalised with a share placement boosting cash reserves to 13m EUR.

As can be seen from the chart, the share price has been volatile these past few months due to the Covid effect however, after a sharp dip in March, it seems to be on an upward path again. The shares were purchased in my ISA last week at 5.60 EUR. They reached a high of 7.95 in February and I am hoping the shares can soon get back to this level and beyond.

12 month share price  (click to enlarge)

This has expanded my holdings in hydrogen companies to six with the largest holding in ITM Power. There is naturally a lot of hype being generated around renewable energy and hydrogen but also some of the big players are getting involved. For example Electricite de France has a stake in McPhy, German giant Linde acquired a stake in ITM and Bosch has a stake in Ceres Power.

For me, I think the world is now starting to take climate change more seriously and there seems to be more of a real commitment to achieving net zero emissions by 2050. In my opinion, this simply cannot be achieved without the use of renewable green hydrogen on a large scale.

It will be interesting to see how the sector develops over the coming year or two as we come out of the coronavirus pandemic and look to build back better.

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 smaller companies can be rewarding but is higher risk - always DYOR!

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