Horror for Nel share! Nordex and First Hydrogen impress!

First Hydrogen: Will the signal lead to a revaluation?

First Hydrogen's stock sent a strong signal on Monday. While Nel plummeted, First Hydrogen managed to post slight gains. This further underscores that the Company is one of the promising players in the new generation in the hydrogen sector. The core business is hydrogen-powered fuel cell commercial vehicles (FCEV). After years of development, extensive tests have been carried out in everyday operations over the past two years. In the UK, test vehicles have been successfully deployed in practice by online giant Amazon, among others. Range and reliability were significantly higher compared to battery-powered commercial vehicles. Even Toyota appears to recognize hydrogen's potential in this segment, as the automotive giant recently announced a shift in its hydrogen strategy to focus more on the commercial vehicle sector.

But First Hydrogen has a second string to its bow and this could become a strong share price driver this year: Hydrogen from nuclear energy. First Hydrogen recently announced that it wants to expand its Hydrogen-as-a-Service offering. The Company sees great potential in hydrogen production using small modular nuclear reactors (SMRs). This could relieve the pressure on power grids that are reaching their capacity limits. Electricity production and demand will continue to rise rapidly in the coming years due to the billions being invested in data centres for artificial intelligence. In contrast, the expansion of the grids is progressing much more slowly. SMRs are compact, efficient nuclear energy systems representing a scalable, decentralized, globally recognized green alternative to fossil energy sources. With SMRs, hydrogen could be produced where needed, thus relieving the burden on the power grids. At 3.6 cents per kWh, First Hydrogen believes that power generation in SMRs is fully competitive.

Given this positive outlook, First Hydrogen, valued at less than CAD 20 million, is far from being overvalued. A first major order for its hydrogen-powered fuel cell commercial vehicles could trigger a revaluation.

Nel: Still salvageable?

After Nel published a positive news item on Sunday, the shock followed at the beginning of the week. The hydrogen specialist announced that capacities must be adjusted to market demand. This means that around 20% of the workforce will be laid off, and production at the alkaline production plant in Herøya, Norway, will be temporarily suspended. This news did not come as a surprise, as hardly any new major orders have been reported in the last 1 to 2 years. Accordingly, the order book is now empty. And unfortunately that is not all that is negative. In addition, Nel has initiated legal proceedings against a customer. After waiting over a year for payments, Nel now seeks to regain control over previously delivered equipment. The customer involved was not disclosed.

Nel CEO Håkon Volldal commented: "Although the long-term outlook for clean hydrogen remains strong, we have to make some difficult decisions today due to lower-than-expected order intake in 2024." Nel continues to see a strong pipeline of clean hydrogen projects and is working on several specific offers, including projects for which Nel is currently conducting paid FEED (Front-End Engineering Design) studies. Nel also sees good short-term opportunities for the sale of containerized PEM systems. The Norwegian company also wants to continue developing technologically.

On Sunday, Nel announced that it will receive additional tax credits of up to USD 29 million in the US for its planned production expansion in Michigan. This corresponds to around 30% of the investment budget. In total, Nel has now received nearly USD 200 million in support in the form of tax credits and other grants from the state of Michigan and the Department of Energy. However, Nel emphasized that the final investment decision for the Michigan plant has not yet been made and that the site's expansion depends on demand. Following the latest announcement, this project could, therefore, be postponed.

Nordex: A favourite among German midcaps

This week brought positive momentum for Nordex. The wind turbine manufacturer is benefiting from positive comments from Jefferies. The analysts see opportunities in German small and mid-caps, with Nordex being one of their favourites. The Company's risk-reward profile is considered attractive, with significantly improved profitability and a positive outlook supported by a strong order backlog. The high cash position offers additional security. The analysts see the fair value of the Nordex share at EUR 18, which implies an upside potential of 50%.

There are also positive operational developments to report at Nordex. The wind turbine manufacturer has received a major order from Canada. The order is for 36 N163/6.X turbines for wind farms. Delivery is scheduled for the beginning of next year. Overall, Nordex's business in North America appears to be developing positively. Manav Sharma, CEO of the North America division, said that with the latest orders, the 1 GW mark would be exceeded in 2024. He added that Nordex had increased its regional order intake by 350% last year.

The Nordex share appears to have ended its consolidation at EUR 11 and is again starting to trend upward. However, there have been repeated setbacks in the highly competitive wind sector. First Hydrogen's stock appears ready for an upward breakout. To ignite the price rally, a first major order is needed. The Nel share always has the potential for a price jump – but the chart speaks for itself.