Barclay’s bull or Pearce take? Why green hydrogen is the ‘key one to watch’ in 2021
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Each Friday, corporate advisory firm Barclay Pearce highlights the key trading themes of the week, along with which companies and sectors Stockhead readers should be keeping their eye on.
BNPL (buy now, pay later) is often topical, and the sector has been in focus over the past week with some heat coming out of the market.
Shares in market-leader Afterpay (ASX:APT) have dipped from highs above $150 to around $110, mirroring similar falls across the space.
For Trent Primmer, head of trading at Barclay Pearce, the moves can be attributed to increased competition as well as a sector re-rating from tier one investment banks.
“You’ve got the launch of Commonwealth Bank’s in-house BNPL product which they’re rolling out for account holders,” Primmer said.
“And that’s not to be confused with (BNPL competitor) Klarna, which they hold a separate investment in.
“So it will be an entirely different product — no ongoing fees, and only a $10 missed payment fee per transaction which is small in comparison to APT and Zip Co (ASX:Z1P) fees.
In light of that, “some of the larger investment banks have started lowering their price targets”, Primmer said.
He added that market participants are also wary of potential regulatory changes, which would prevent companies such as Afterpay from forcing their merchant customers to pass on merchant fees.
“For a company like Afterpay, that’s their bread and butter. So the market right now is starting to reprice these businesses, particularly in light of those lower analyst price targets,” Primmer said.
In terms of momentum plays, Primmer highlighted a recent round of support for gold which has seen prices consolidated above $US1,700 an ounce.
However, the precious metal has drifted lower from its August 2020 highs above the $US2,000/oz mark.
With policy support from central banks combined with the US government’s new stimulus package and employment growth underpinned by big infrastructure projects, Primmer says you’d “expect gold to come off a bit in the short term”.
But longer term, he has “no issues” with the view that gold can potentially push back above $US2,000/oz.
“You should always have some gold exposure in your portfolio, iresspective of short-term fluctuations. You’ll never get a perfect entry price into something like gold,” Primmer says.
It’s been a bullish year for crypto, and Primmer said the recent price action could reflect something of a portfolio rotation as institutional investment becomes more common.
“While it’s always volatile, we saw it reach about $AUD80k over the weekend. So with the selloffs in sectors like BNPL, you could be seeing some funds moving from a high-beta play in the tech market to something like crypto,” he said.
“It fits with rationale of investors aiming for higher returns, and speculating on prices of those digital assets like Bitcoin and Ethereum.”
For Primmer, when it comes to industries where investors should be stepping up their research, one sector stood out this week — green hydrogen.
“I think that’s the key one to watch. We’ve seen a continued focus by more companies on clean energy, and from an advisory standpoint we’re seeing a lot more activity there.”
He cited research from NERA (National Energy Resources Australia), which stated that the growth of clean hydrogen will contribute around $11bn of activity to the Australian economy.
“There’s a lot more talk in the space, and from the ground level, we’re working with several hydrogen and clean energy technology that are currently in the pre-IPO phase as we speak.”
Within the listed space, Primmer also flagged two companies set to benefit from broader tailwinds behind the sector.
Hexagon Energy (ASX:HXG): “They acquired a project last year which is currently in the pre feasibility phase, where they’re looking to produce blue hydrogen and store the energy from coal,” Primmer said.
(For a rundown on hydrogen production categories from grey to blue to green, click here.)
Hazer Group (ASX:HZR): The first pure-play hydrogen stock on the ASX, HZR has developed a “Hazer process” for producing hydrogen from natural gas.
And when it’s commissioned later this year, the company’s first low emission Commercial Development Project (CDP) in WA is expected to produce 100 tonnes of hydrogen, which could serve as a test case for larger projects.
Global Energy Ventures (ASX:GEV): GEV is a company “riding the green hydrogen wave” by developing shipping options for compressed hydrogen, Primmer said.
Still in its R&D phase, the company is developing purpose-build transport vessels capable of shipping around 2,000 tonnes of compressed hydrogen.
“With Australia positioning itself as a major Green Hydrogen exporter, GEV are putting themselves in a strong position to benefit from this energy and export transition,” Primmer said.
More broadly, “anything exposed to the hydrogen thematic, I’d be looking at fairly closely”, he added.
“Over the next couple of years, you’re going to get a lot of players in that space considering how large the industry is,” Primmer said.
“So in my view it’s a good idea to get in early on a thematic like this, particularly if you can invest in company’s raising capital for green hydrogen projects in the pre-IPO phase.”
“And if you’re a retail investors looking for exposure, the stocks I mentioned are some of the best-placed for hydrogen exposure.”