14.03.2018 kl 13:03 6920

NEL ASA – Initiation of Coverage

Arctic Buy

Market Cap: NOK 2446m

Price/Target: NOK 3.8/NOK 7.0

P/E 15: n.m.

P/E 16: n.m.

EV/EBITDA 15: n.m.

EV/EBITDA 16: n.m.

Fuelled by the future

Link to report: http://online.arcticsec.no/PDF/cr_51115.pdf

· Buy and NOK 7.0/share target price. We are initiating coverage on NEL ASA with a Buy recommendation and a NOK 7.0/share target price. The company is a pure-play on the emerging market for hydrogen through its integrated hydrogen energy solutions, with high-efficiency electrolysers (for production of hydrogen) and refuelling stations for vehicles being the main product lines. We expect NEL to expand further into other niches of the hydrogen market over time, but for now the company is focused around the most readily scalable businesses.

· A possible game changing opportunity with an estimated $15.7bn addressable market. Based on 3rd party reports we see a total addressable market for NEL in the amount of ~$15.7bn – with rather substantial upside longer term should hydrogen become a full substitute for hydrocarbons. We see two potentially major markets for NEL going forward:

1) Car manufacturers such as Toyota and Hyundai have lifted Hydrogen to the top of the energy agenda, and governments have followed up by kick-starting construction of refuelling stations to support the roll-out of cars (especially in EU, Japan and the US). 2015 was a break-through year for hydrogen as a fuel, with several new cars being introduced in addition to the first announcements of large scale plans for refuelling stations (e.g. 400 stations in Germany). We see potential for ~1000 new stations in the 2016-2020 period in NEL’s key markets, amounting to a USD ~1.5bn opportunity.

2) Hydrogen has also gained traction for storage purposes (Power-to-Gas), as intermittent renewable electricity production needs to be levelled out. This looks to be the largest potential market of them all if hydrogen ends up as the preferred solution, but this market has not evolved as far as the automotive industry yet. External analysis1,2 points to a USD 14bn market potential for electrolysers globally, illustrating the massive opportunity for hydrogen as a storage medium for renewable energy.

· Our scenario based valuation approach yields NOK 7.0/share. We are fully aware that the risk is high, but so is the potential reward. We have taken a scenario approach when valuing NEL; where our base case assumes 800 stations installed by 2025, our high case assumes 1100, while our low case only includes the «old» electrolyser business and no significant earnings from fuelling stations. With this approach we end up at a probability weighted target price of NOK 7.0/share. In this regard we also highlight NEL as a potential take-over candidate as the market matures. Lastly, we caution that NEL at this point in time is traded as a «concept stock» – the trading pattern will rely heavily on newsflow and not necessarily earnings revisions and quarterly results in the short to medium term.

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