Investors can use the current stock market sell-off as a buying opportunity for hydrogen-related companies such as Ceres Power Holdings PLC (AIM:CWR, OTC:CPWHF), ITM Power and Nel, said Citigroup.
After a sell-off in some stocks since November, the bank’s analysts said they “view the risk/reward trade-off as attractive” for European electric equipment shares.
“We think investors can use the current sell-off as a buying opportunity ahead of positive catalysts that we see playing out in 2022,” analyst Edward Maravanyika said in a note disseminated on Tuesday.
Catalysts expected in 2022 to positively impact the sector include “policy momentum, customer partnerships, new orders, and capacity increases gaining prominence”.
While he acknowledged that the ‘growth’ investment theme was falling out of favour amid the hullabaloo about rate rise fears, “when volatility settles we think investors should focus on the green hydrogen opportunity as hydrogen demand grows and as green hydrogen potentially gains market share”.
“Policy momentum remains strong and large industrial hydrogen users have started to place significant orders for green hydrogen equipment.
“The trend is unlikely to reverse.”
Citi calculates the total addressable market (TAM) for hydrogen as potentially rising seven times by 2050.
Ceres, ITM and Nel are all recommended, rated ‘buy/high risk’.
Also on Tuesday, JPMorgan also noted the hydrogen (H2) subsector has materially underperformed “due to company-specific, sectoral, and wider market factors”.
But the JPM analysts noted that 2021 also saw “momentum in corporate adoption of H2 and larger electrolyser projects, while higher fossil fuel prices offer a reminder why transitioning to green H2 could become cost competitive sooner than many expect”.
Despite this, the bank said in a note to clients that low industry utilisations “could still depress margins for electrolyser manufacturers on our estimates”.
As a result, in Europe, JPM is cautious on "electrolyser OEMs" (original equipment manufacturers) and prefers the likes of ITM over Norway’s Nel and Denmark’s Green Hydrogen Systems, with the latter downgraded to ‘underweight’.
JPM said it sees opportunities in other “more fuel cell focused” H2 names outside of the EU, such as Plug Power (NASDAQ:PLUG), Hyzon, Bloom Energy, Doosan Fuel Cell, CIMC Enric and Beijing Sinohytec, all of which have an ‘overweight;’ rating.