MoneyTalks: This fundie gives us the low-down on investing in hydrogen stocks
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Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from Niv Dagan from Peak Asset Management.
Hydrogen and energy storage will continue to be big themes for 2022, Dagan says.
Underpinned by a global shift toward decarbonisation, the hydrogen space is receiving unprecedented interest and investments.
According to the Hydrogen Council, as of January 2022 governments worldwide have committed more than US$70 billion in public funding towards hydrogen.
This number is expected to further increase, exceeding US$300 billion in hydrogen spending through 2030 – the equivalent of 1.4% of global energy funding.
“I see more potential off-takes coming into play in 2023/ 2024 for the industry, before commercialisation really starts ramping up in 2025/ 2026,” Dagan said.
“The problem with green hydrogen is that it’s still in the early stage – the costs are still high, relative to say traditional fossil fuels powering electricity.
“Infrastructure in Australia and globally, in terms of pipelines, ports and distribution of the hydrogen, is still very early stage.”
Validation is they key in commercialisation and also the biggest risk, he said.
“You need to have government support and for the end consumer, the market needs to be economically viable,” Dagan said.
“For example, as a consumer, why would I pay $80,000 for a Toyota powered by Green Hydrogen, if I can pay $20,000 for a diesel/petrol/hybrid?
“That’s the key – the cost versus viability, but that will occur only once you’ve got the infrastructure in place and costs fall dramatically closer to $2/kg – this is still 2 to 3 years away and lower renewable costs are not enough.
“For low-cost clean hydrogen production, value chains for electrolysis and carbon management need to be scaled up.”
Like always, Dagan says you need to have the right management team in place.
“Expertise is important, you need to ensure management aren’t in there just to pick up their salary – in effect, you want to make sure they are there for the right reasons and are motivated to build a real business.
“Management, ownership and knowledge are essential,” he said.
The second important factor investors need to look at is capital structure in terms of the market capitalisation, how much cash have they got, the shares on issue, inside ownership, and what percentage of the company do the management they own?
Thirdly, Dagan said the partners of the development are critical.
“Has the company got binding agreements in place and global partners with a strong balance sheet?,”he said.
“We know it will be capital intensive to build the megawatt factory, or a green hydrogen ship so these companies need to have the right global partners in place that can commercialise these projects.
“Also, the right network and distribution agreements – the key for hydrogen is off-take and Government support so that companies can get their projects off the ground.”
Such a scale-up will lead to a rapid industrialisation of the electrolyser value chain, he added.
The amount of companies in the nascent space is growing – you’ve got Fortescue Metals’ (ASX:FMG) green arm Fortescue Future Industries doing big things, Province Resources (ASX:PRL), and Global Energy Ventures (ASX:GEV) which is seeking to commercialise green hydrogen for the shipping industry.
But Dagan says Lion Energy (ASX:LIO), Renu Energy (ASX:RNE), and unlisted Countrywide Renewable Hydrogen are his top three in terms of where they are at in the life cycle relative to the others, especially in Australia.
“The company has a small market capitalisation of only $13.3 million, is fully funded and has unveiled its investment in Allegro – a battery technology that is not only cheaper by ‘a factor of 100’ but will also assist in reducing the energy costs for its recently acquired Countrywide Renewable Hydrogen,” Dagan said.
“We see this as being extremely complementary, as energy storage becomes a large problem in 2022.
“If carbon transportation and storage sites are developed at scale, low-carbon hydrogen could break even with gray hydrogen by the end of the decade at a cost of about USD 35-50 per ton of carbon dioxide equivalent (CO2e).
“Countrywide Renewable Hydrogen is backed by Geoff Drucker who has had more than 25 years of experience in the renewable space, and they have several projects in Australia and overseas with large global partners.
“In Portland, Victoria they are set to build a 10-million-megawatt hydrogen station over the next 12 – 18 months and will take an equity position in the project itself.”
LIO is focused on green hydrogen and the mobility sector.
“What lion has done well is that they have developed some strong alliances with the likes of Censtar – one of China’s largest manufacturers of fuel and LPG dispensaries and is a global leader,” he said.
“At only $18m enterprise value, the company has recently signed a partnership with Bus QLD and Foton Mobility to drive green hydrogen fuelling across their fleets.
“In addition, it has a partnership with the Wagner Family (owner of several railway and port infrastructure in QLD).
“We feel that LIO is well positioned, via its strategic partnerships and global partners to revolutionise the mobility industry for green hydrogen.”
Peak Asset Management recently raised $2.37m for RNE and $6.1Mm for LIO in over-subscribed placements.
It is also large shareholders of both companies.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.
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