Hydrogen versus oil and gas in 2023 - Uniper, Saturn Oil + Gas, Nel ASA, Plug Power? The 150% chance!

Uniper - The taxpayer says thank you

What is next for Uniper? After the spectacular state bailout with an estimated cost of over EUR 40 billion, the helm of the energy group now goes to the Ministry of Economics in Berlin. Uniper had carried out a capital increase of EUR 8 billion before Christmas, to which only the German government was allowed to subscribe. In addition, the German government bought all 75% of the shares from the previous Finnish majority shareholder Fortum. Uniper estimates that the situation could finally stabilize by the end of 2024 as a result of the government aid that has been promised. The taxpayer will lose out, as the bailout billions will be added to Germany's already overflowing national debt.

The European Commission approved the state aid after Uniper's shareholders gave the go-ahead. With the new owner, the board members are using their special right of termination. CEO Klaus-Dieter Maubach informed the supervisory board that he intends to step down as a board member this year. Likewise, COO David Bryson announced his departure, but both want to continue in office until a suitable successor is secured. The question is who will be considered for the job because state property will now be under administration. This has rarely ended well in economic history. At EUR 2.70, the share is completely overpriced in view of the enormous mountain of debt in favor of the taxpayers.

Saturn Oil & Gas - The realignment is not recognized by the market

With the WTI oil price currently at USD 74.50, the price has now moved below the pre-war level of February 2022. No matter which economic picture one chooses to put forward, the long-term geopolitical picture will continue to feed energy prices for a while. However, distortions and volatility can always occur in this scenario. Currently, however, a recession is pricing itself in, which many forecasters see as a consequence of strong inflation.

The Canadian oil producer Saturn Oil feels confirmed in its strategy, as it has been able to expand its production in an uncertain period within only two years through acquisitions. By mid-December, daily capacity had already reached 12,500 barrels (BOE/d), a factor of 50 compared with production just two years ago. The Company is able to put 50% of its cash flow into paying off the loans taken to acquire the additional Viking fields in Saskatchewan. That brings the current debt of about CAD 215 million to zero by mid-2024, provided WTI prices remain at about USD 80 or above.

Thanks to forward transactions, Saturn can already draw up its plans with a high degree of certainty. That is because it was able to sell forward part of its expected production in the second quarter of 2022 at spot prices between USD 95 and 115. What was intended to secure income for servicing the loans is now proving to be a special profit in the following quarters. The Company is also benefiting from the unhedged production shares, which can be sold on the market at good operating margins. This brings ongoing surpluses into the coffers while freeing up funds that can be used for further development. In Q3-2022, adjusted EBITDA reached a record CAD 50.3 million, even though the average oil price had already corrected from USD 108.40 to USD 91.50.

Saturn is now among the top 10 oil producers in Saskatchewan. Therefore, the prospects for the near future could not be better. The target for average daily yield in 2023 is estimated at around 13,400 barrels (BOE/d), which generates adjusted EBITDA of over CAD 200 million for the full year, even at slightly lower oil prices. The stock market has not yet been able to adequately reflect this in the price, as with about 59.8 million shares, the current market capitalization is only about CAD 140 million. Given the strong growth profile for Saturn Oil & Gas, Echelon Partners analyst Tom Hems assigns a "buy" rating with a price target of CAD 6.00 - around a 150% premium to the current stock market price.

Plug Power and Nel ASA - Well out of hibernation

When looking ahead to the new year 2023, hydrogen technology could positively contribute to the energy transition for the first time. That is because, in competition with fossil raw materials, the topic is developing further and further ahead internationally. What is important here is the rate of impact, the price and the quantity that can be generated in an environmentally friendly manner to industrial standards.

Plug Power, one of the market leaders in modern fuel cell systems, will bring H2 technology to the market in large-scale production. The Company's latest fuel cell technology has already been used to successfully implement some major projects with Walmart, Lidl, Amazon and Home Depot. As of the third quarter of 2022, Plug Power reported an order inventory of 1.5 gigawatts and a revenue potential of more than USD 25 billion by 2030. With well-known partners such as Renault (HYVIA), Korea's SK Group, and Australia's Fortescue Future, more large-scale projects are now getting underway. In the US alone, the climate protection measures included are expected to lead to a reduction in harmful CO2 emissions of around 40% by 2030 compared with 2005.

One of the protagonists in Europe is the Norwegian company Nel ASA. While the previous quarters tended to disappoint, the Norwegians presented themselves confidently in the last report. Business still needs to improve, but under the new CEO, Hakon Volldal, the Company is landing one major order after another. On the whole, the last quarterly figures were still somewhat disappointing. That is because the operating EBITA loss increased from NOK 113 million to NOK 241 million in the third quarter. However, in terms of order intake, NEL saw a 456% YOY increase to NOK 775 million, repeatedly stressed by management that they would like to see more public support for the H2 climate offensive.

Nel will be one of the first companies to report for 2022 as early as February 15, and Plug Power will not comment until March 9. At EUR 1.56 and EUR 13.30, respectively, Nel and Plug trade at 2023 sales ratios of 15 and 5. Plug wants to become profitable in 2025, while for Nel ASA, it is not until 2026. From today's point of view, Plug Power seems more favorable and hinges on the major investment promises of US President Joe Biden. Europe still has some catching up to do here.

Geopolitical turmoil will continue to keep commodities high despite recessionary trends. While the hydrogen theme is only slowly gaining traction, Saturn Oil & Gas from Canada, with a P/E ratio of approx. 1.5 based on 2023 is dirt cheap compared to the peer group.