Why Hydrogenics Corporation (NASDAQ:HYGS) Has Huge Upside Potential

- August 3, 2017

Hydrogenics Corporation (NASDAQ:HYGS) is the worldwide leader in designing, manufacturing, building and installing industrial and commercial hydrogen generation, fuel cells and MW-scale energy storage solutions. The Hydrogen storage market forecast is set grow significantly.  That is why they have upside potential of 200%!  Their systems are available for retail, commercial and the military. Take a look at (HYGS) 5 year price graph below.

 

Hydrogenics Corporation (NASDAQ:HYGS) 5 Year Price Graph:

Source: Bloomberg

 

About Hydrogenics Corporation (NASDAQ:HYGS) (TSX:HYG)

Hydrogenics Corporation (NASDAQ:HYGS) (TSX:HYG) has over 60 years of experience designing, manufacturing, building and installing hydrogen systems.  The company focuses on hydrogen generation and fuel cell products, including energy storage, based on water electrolysis technology and proton exchange membrane technology.

The company was founded on June 10, 2009 and is headquartered in Mississauga, Canada, with manufacturing facilities located in Germany and Belgium.

The hydrogen storage market size was valued at US $4.0 Billion in 2015 and is expected to witness significant growth over the forecast period, as can be seen from the graph below. The key sector is stationary power storage.

Source

 

Hydrogenics Corporation (TSX:HYG) Operates Via Two Segments:

Onsite Generation (60% of revenue)  Based on water electrolysis technology which involves the decomposition of water into oxygen and hydrogen gas by passing an electric current through a liquid electrolyte and a polymer electrolyte membrane.

Power Systems (40% of revenue)  Based on proton exchange membrane fuel cell technology, which transforms chemical energy liberated during the electrochemical reaction of hydrogen and oxygen into electrical energy.

They offer world leading expertise for a range of applications, including:

  • PEM and alkaline hydrogen generators for Industrial processes and Fueling stations
  • Hydrogen fuel cells for electric vehicles, such as urban transit buses, commercial fleets, utility vehicles and electric lift trucks
  • Fuel cell installations for freestanding electrical power plants, critical power and UPS systems (uninterruptible power supply)
  • Power-to-Gas” the world’s most innovative way to store and transport energy

Global Hydrogen Generator Market is expected to grow at CAGR  5% during the period 2017 to 2023.

The chart below gives a nice summary of how hydrogen can be used as a fuel, and how it can be created onsite and used for energy storage.

Source

Revenue Drivers For Hydrogenics Corporation (TSX:HYG)

Areas of increased demand for hydrogen power/storage will benefit Hydrogenics Corporation (TSX:HYG) Stock are:

  • Utility companies wanting to store energy in off peak times ready to release in peak times.
  • Fuel cell installations for freestanding electrical power plants, critical power and uninterruptible power supply (UPS) systems.  An example is energy storage systems to allow data centers to protect their data and telecom towers to run when the power goes out. Others would include airports and hospitals.
  •  Transit authorities to fuel and power their fleets to serve their customers with zero-emission transportation.  Hydrogen fuel cells for electric vehicles, such as urban transit buses, commercial fleets, utility vehicles and electric lift trucks.

In 2016, 49.6% or Hydrogenics revenue came from Western Europe, followed by 23.3% from Asia, 13.6% from Eastern Europe, and only 8.7% from North America.

In June 2017, the company announced a deal worth US $50 Million for 1,000 fuel cell bus power modules with Blue-G New Energy Science and Technology Corporation of China.  The company states “delivery of the fuel cells and the associated payments are expected to occur over the next two to three years. Incremental are license royalties which are expected to generate revenues for the company over a 10-year period.”

The company reports a record backlog of orders of $109.8 Million (as of March 31, 2017) supporting significant growth in revenue for 2017.

Note of the above backlog of $109.8 million, the company expects to recognize $44.1 million in the following twelve months as revenue.

Potentially significant new orders are expected from alliances with GE subsidiary Alstom, Kolon, and Kurion.

Competitors

Main competitors in the hydrogen sector include Ballard Power (BLDP) and Plug Power (PLUG)

Investors can view a recent company presentation here.

Valuation

Hydrogenics Corp. currently has a market cap of just US $112 Million.

As of 31 March 2017, Hydrogenics Corp had $11.7m in cash, $4.6m in debt.

2019 PE is forecast to be 44, however this could rapidly reduce if new revenues materialize soon.

Analyst consensus price target is US $27.50 representing around 200% upside.

 

Source: 4-traders

 

Conclusion 

Hydrogenics Corporation (NASDAQ:HYGS) (TSX:HYG) is in a sector with huge upside potential despite competing with lithium ion battery power and storage. Along with other energy solutions such as pumped hydro, flow and other batteries, compressed air, and thermal energy.  Each has their place in a growing green energy world.

The company is priced cheaper than its peers especially when considering the large order backlog.  Assuming Hydrogenics is able to land some of their potential orders they could very soon have revenue the same as their market cap and enterprise value.  Off course should the orders, revenue, and then profits all come through in the next 2 years, the stock will dramatically re-rate higher.

It is quite rare to find a stock that trades with a 200% upside to analysts one year price target.

I rate the stock as a worthwhile speculative buy.  A link to Hydrogenics Corporation (NASDAQ:HYGS) (TSX:HYG) can be found here.

 

 

 

 

 

 

 

 

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