SB1M
Downgrade on explosion at H2 station in Norway
We downgrade our recommendation on NEL to Neutral and reduce our target price to
NOK7.0 from NOK9.2 due to an explosion on one of the company’s hydrogen stations in
Sandvika (Norway). There is too early to state the cause of the explosion, and we might be
a bit too harsh on our downgrade, but the share price of NEL is strongly momentum driven
and we believe it may be weak in the short-term. If the explosion is caused by core NEL
technology, it may be negative for the order intake going forward. If it is related to noncore technology, the short-term noise probably results in a good buying opportunity. Thus,
increased uncertainty combined with a strong trend of “Sell in May and go away” on OSEBX,
one may take some profit of the 53% share price increase YTD.
Explosion in a NEL hydrogen station
So far, we do not know much more that it has been an explosion at a hydrogen station
in Sandvika (Norway), delivered by NEL in 2016. There seems to be no casualties in the
explosion and minimal damage to surroundings. More information should be obtained
through the night and we expect a press release from the company tomorrow
morning. The station is operated by Uno-X Hydrogen and it contains an electrolyser,
hydrogen station, compressor and storage facilities.
What is a fair share price reaction?
We believe that the share price may react negative in the short-term, which could
provide an excellent opportunity to pick it up for long-term investors. The NEL share
price was at peak up 100% YTD on positive news, before dropping 30% on a sale from
two major owners. Needless to say, it is strongly momentum driven.
However, the closest similar accident to our knowledge is an explosion at a chemical
plant from Air Products and Chemicals Inc. (APD) in California on 4 June 2019, which
resulted in a hydrogen shortage in the Bay Area. The share price of APD did not react
negative and it is up 39% YTD.
In general, almost all brands of electric vehicles has experienced burning accidents and
despite statistics showing more accidents with electric vehicles, the sales continue to
reach new records almost every month. Of course it is not positive that a hydrogen
station explodes, and although accidents unfortunately happens, it does not have a
significant long-term effect when the impact is limited like this one.
Estimate changes
We do not expect the accident to have any impact on NEL’s backlog or strong order
intake going forward. Thus, we leave our estimates unchanged. We reduce our target
price to NOK7.0 form NOK9.2 based on an uncertainty discount, which we expect to
remove once we get more clarity and NEL reports new orders.