MoneyTalks: GreenHy2 to rise on unique hydrogen technology; A2 Milk could lift despite challenges

GreenHy2’s hydrogen storage technology has significant cost advantage
A2 Milk to lift despite China challenges
AIC Mines could lift following discovery of Lens 6

GreenHy2’s technology to underpin share price lift

Barclay Pearce Capital (BCP) has a Speculative Buy rating on GreenHy2 (ASX:H2G), with a target price of 5c (versus current price of 2c).

GreenHy2 is one of Australia’s leading innovators in the delivery of engineering solutions for renewable energy, specifically focussing on Stand Alone Power Systems. The company has specific expertise in Solid State Hydrogen Storage for use in fuel cells and as hydrogen gas.

BCP believes GH2 has several tailwinds, including a political landscape that’s conducive to the company’s growth.

Over the past year the Federal Government has increased support to add more emission reduction projects, with PM Albanese openly stating his support for the transition to net zero by 2050.

The Australian Government has also earmarked $300 million of Clean Energy Finance Corporation funding to offer lower-cost finance to support early movers in Australia’s nascent renewable hydrogen sector.

H2G has received funding via government R&D rebates, and will be seeking additional project funding through ARENA on the completion of current feasibility studies.

H2G believes renewable energy generation from solar or wind is not consistent enough for most load requirements, while storing larger amounts of energy created from renewable energy sources is expensive.

Batteries are the current default storage method, but are expensive in long duration service applications.

Traditionally, if we want to store hydrogen we must do so at high pressure or low temperature and use tanks made from specialist materials. These tanks are large and expensive to manufacture, and they can’t be used for long-term storage or be recycled.

H2G’s solution is to offer hydrogen storage in metal hydrides, which involves breaking up the hydrogen molecules and storing them on the ferrous titanium.

The H2G process is reversible, and has no degradation effects on the host metal. Using metal hydrides, hydrogen can be stored for use on different land-based, or water-borne applications.

BCP says this is the only commercial technology capable of 100% renewable fraction, and is completely green, using 100% renewable generation.

This storage method also has a significant cost advantage as hydrogen stored in metal hydride tanks has no expiry date.

Despite China challenge, A2 Milk’s share price could lift

BCP also has a big target on A2 Milk (ASX:A2M) at $8.01, versus the current price of $5.40.

In the first half, A2M delivered revenue of $783.3m, up 18.6% from the prior corresponding period (pcp). The company also reported bottom line NPAT of $68.5m, up 22.1% on pcp.

BCP believes A2M has effectively executed its China growth strategy, growing its infant milk formula (IMF) sales by 18% in the country during the half when the market was down 12.5%.

A2M has acknowledged that the increasingly challenging China IMF market dynamics will continue due to fewer births in 2022.

However, the company expects full year FY23 gross margin percentage to be slightly higher than FY22 – with cost of goods sold being offset by price increases.

A2M CEO David Bortolussi said: ”We are in good shape heading into an increasingly challenging period with the rolling impact of the decline in the birth rate, and a market-wide transition of China label product to the new GB standard.”

BPC says it expects A2M to deliver positive earnings revisions of 3% for FY23 and future periods.

“We are updating our price target from $5.79 to $8.01, and retaining our HOLD recommendation,” the broker said.

Speculative Buy on AIC Mines

Broker Ord Minnett has a Speculative Buy on gold and copper explorer AIC Mines (ASX:A1M), with a price target of 65c (versus current price of 40c).

A1M recently provided a mineral inventory update for Eloise where both resources and reserves recorded material improvements.

Contained copper for reserves increased 46% whilst resources increased 19%. Importantly, copper grades remain high at 2.4% and there were no changes to any economic inputs, meaning the growth was entirely organic (i.e. drilling related).

The key driver of the growth was the discovery of Lens 6.

“Following this update, we increase our Exploration SOTP (sum of the parts) by ~$15m, or $.03 per share,” says the broker.

“This update reaffirms our thesis that there is significant near-mine mineralisation upside that can extend mine life and valuation for the project.

“We forecast an exploration spend in FY24 of $6m, covering both Eloise and Jericho which, in our view, will likely yield further confidence and mineral inventory additions and mine life extensions.”

Q3 meanwhile saw a softer result from A1M as mill shutdowns combined with weather events resulted in 10 days of lost production. The company has since lowered its FY23 guidance by -17% to ~10.4kt Cu.

“We incorporate this result, and take a slightly more conservative view of mining rates through to Q2 of 2024,” said the note from Ord Minnett.

“Our target prices reduces to 65c from 70c, but we still keep our Speculative Buy recommendation on AIC.”