The stock of the week
#1- NEL ASA (NEL) — Fueling the growth of a circular economy
As Europe sets a huge strategic emphasis on developing a hydrogen-based circular economy over the next decades, we opted to launch our blog with an H2 technology company. Our first story leads us to Norway, where we find a global pioneer in hydrogen technology and a company, which can possibly be described as the oldest startup globally
NEL ASA is one of the founding fathers in the industrial use of Hydrogen, and the first installation dates almost 100 years back. Its first electrolyzer was already installed in 1927. Still, the company didn’t create much growth for decades.
Despite its small size, NEL continued working on its vision to provide an unlimited amount of clean energy to humanity. Climate change only started to seriously enter the public debate in the second decade of the third millennium — NEL was finally ready to enter its scale-up phase.
The company was taken public in 2014 and became the first-ever 100% hydrogen dedicated company at the Oslo Stock exchange.
In 2020 NEL is all of a sudden one of the hottest stocks globally in the area of industrial technology. By November 2020, the market cap of NEL Hydrogen exceeded 2,9 billion USD, and NEL already generated revenues of
~65 Million USD in 2019. Suddenly, NEL is valued as one of the most expensive tech stocks globally, with a Price/Sales ratio of 43,6. Just for comparison, the recent IPO of the mysterious big data startup PALANTIR valued the company at a P/S ratio of approximately 24, which is only about 50% of NELs valuation.
Where does this excitement come from and can NEL fulfill the high expectations?
Many leading engineers identified hydrogen as the most viable long term replacement for fossil fuels. If those concepts will be supported by politics & industry, Hydrogen will be a multi-billion dollar industry soon. With that being said, there will not only be a huge market for those producing and selling hydrogen, but also for those who manufacture the equipment needed to generate H2.
A first compelling argument for the future success of NEL is the complete portfolio, as its technologies cover the entire H2 value chain. Furthermore, NEL is in an exceedingly strong market position. With over 3,500 installations worldwide, the company is regarded to be the leader in industrial electrolysis and NEL also maintains a strong market position in H2 fuelling. NEL is a pure-play equipment provider and wants to keep it that way. Nevertheless, NEL also wants to profit from the direct marketing of H2 via a 20% stake in EVERFUEL.
A second strong argument pro NEL is that it has already established manufacturing plants in Europe & the US, which puts the company in a strong position to conquer those very important markets. In November, NEL was awarded an important contract by the U.S Navy and was selected by IBERDROLA, a global leader in renewable power generation as the preferred partner for a green fertilizer project in Spain.
What’s worrying, however, is the rising competition. NEL`s competitors could attract significant investments recently. Strategic alliances of smaller competitors could turn into a major threat to NEL’s market-leading position. Furthermore, NEL’s expansion into the Chinese market seems to be difficult, as there was no emphasis on China in the latest company presentations. Last but not least, we think that NEL bets on a huge business potential from its collaboration with NIKOLA MOTORS (NKLA). For those who don’t know NIKOLA: The company wants to become the Tesla of hydrogen and aims to become the pioneer for H2 fuelled vehicles.
However, NIKOLA has received a lot of negative press recently and the seriousness of the company is questionable. Therefore, the future development of NIKOLA MOTORS will surely impact NEL’s outlook in the short- and medium-term.
Only time will show if NEL will be able to transform an organization that was very small for almost a century into a global industrial player.
Although the current valuation is exceptionally high, we believe that NEL is in a strong position to defend its no.1 spot in an emerging hydrogen economy. NEL isn’t a profitable company as of now and this indicates that the company is investing heavily in growth, therefore this shouldn’t be a point of concern from an investor's point of view. However, one should be aware that the stock could suffer from major setbacks if hydrogen adoption slows down in the future — which is not an unlikely scenario at all.
In our next articles, we will further explore the emerging H2 economy. You can expect more company portrays as well as an overview of the competitive landscape in hydrogen technology. For the readers interested in the science behind the industrial-scale production of hydrogen, delphidata will explain the two competing technologies alkaline and PEM (Proton-Exchange-Membrane) electrolysis. Stay tuned!
Disclaimer: We assume no liability for its accuracy, completeness, or timeliness. All content published by delphi data labs is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Delphidata is NOT an investment advice platform, hence the authors might own stocks of companies mentioned in delphidata’s publications.
