Company Overview: Plug Power (NASDAQ: PLUG) is one of the front runners in providing green hydrogen and fuel cell solutions. It focuses on electric motors with hydrogen fuel cells for the power, energy, and transportation industries. The company was the first to launch commercially viable hydrogen fuel cell technology. On the capacity side, the company has installed over 40,000 fuel cell systems for e-mobility to deliver value proposition for end users at lower operational costs. The GenKey solution offers all important elements to power, fuel, and provide services to customers such as Amazon, BMW, The Southern Company, Carrefour, and Walmart. The Company is now capitalizing on its technical capabilities, modular product architecture, and customer preferences to accelerate into other key markets such as zero-emission on-road vehicles, robotics, and data centres.

PLUG Details

Plans to gain 20% market share in green hydrogen in Spain and Portugal: As per the release dated 16 February 2021, the company entered a partnership with ACCIONA to boost its green hydrogen platform for the Iberian Peninsula. The aim of this Joint Venture (JV) is to target a 20% market share of the green hydrogen business in Spain and Portugal by 2030. PLUG has green hydrogen generation with over 40,000 fuel cell systems, 150 fueling stations positioned globally, and dispensing over 40 tons of hydrogen daily and liquefaction technology while ACCIONA is the largest 100% renewable power retailer in Spain.

Figure 1. Right mix to accelerate growth:

Source: Company Reports

Green Hydrogen Strategy: Amid acquisitions and strategic partnership, the company has cemented its global leadership position in green hydrogen solutions, in FY20. It acquired Giner ELX and United Hydrogen to support its vertically integrated green hydrogen generation process. The company is expecting high demand for green hydrogen generation, so has increased the targets to be 500 tons per day by 2025 and 1,000 tons per day before 2028. Therefore, closely strengthening partnership with Brookfield and Apex to accelerate the development of plants. The company expects completion of two green hydrogen generation plants by December 2022. According to Bloomberg New Energy Finance, the global hydrogen economy could reach $10 trillion by 2050, representing 18% of the global energy demand.

Building Partnerships: On 12 January 2021, the company announced the signature of a Memorandum of Understanding (MOU) for a 50/50 joint-venture (JV) by H1FY21. This JV is expected to leverage PLUG with 30% market share of the fuel cell-powered light commercial vehicle (LCV) in Europe market that is expected to be ~500,000 vehicles by 2030. The JV will commercialize fuel cell LCV’s in Europe starting in 2021 with pilot fleet deployments.

Besides this, PLUG also released a note on its strategic partnership with SK Group, the second largest conglomerate in Korea, to boot hydrogen as an alternate energy source in Asian markets. On 24 February 2021, these two entities formally closed the equity investment that is expected to see some development during 2021.

Figure 2. Forming 50/50 JV with Groupe Renault:

Source: Company Reports

Figure 3. Key Financials:

Source: Company Reports

Financial Performance in FY20: The Company realised gross billings of $96.3 million in Q4FY20 and $337.4 million in FY20 and installed over 2,200 fuel cell units in Q4FY20 and over 9,800 in FY20. It completed the first ever convertible green bond offering in the US, and the follow-on offering in the clean energy sector to boost the Company’s balance sheet and provide liquidity in overall growth strategy including the build out of green hydrogen generation facilities. The costs of $456 million related to non-cash charges for certain customer warrants impacted the financials. The company reported negative $316 million revenue in Q4FY20 and negative $100 million revenue for FY20. As per the release on March 16, 2021, the company has determined to restate certain prior period financial statements to be included in the 2020 Form 10-K. Therefore, it must be noted that the reported figures for Q4FY20 and FY20 may get revised.

Top 10 Shareholders: The top 10 shareholders together form ~39.27% of the total shareholding. SK Inc. and The Vanguard Group, Inc. are holding a maximum stake in the company at 10.94% and 8.05%, respectively.

Figure 4. Top 10 Shareholders

Key Metrics: PLUG showed an increase in Revenue in FY19 driven by strong gross billings and structural change in sales strategy. Its profitability was supported by an increase in residential value creation, steady recurring revenues, lower R&D, and general expenses. The current ratio is strengthened over the period to 2.1x in FY19 versus 1.1x in FY18.

Figure 5. Key Financial Metrics

Outlook: PLUG exceeded the target of over $330 million in gross billings in 2020 and the same momentum is expected in 2021. The strong order book and expanding customer base in material handling is boosting the sales traction in electrolyzer business. The company provided an upward revision of its gross billings guidance of $475 million in FY21, from $450 million previously announced. It will continue its focus on CapEx and OpEx investments to drive and accelerate the growth across all of green hydrogen and fuel cell platforms. It has set four major goals for 2021: (1) Drive expansion in green hydrogen generation business (2) Launch JVs as per the plan with Renault and SK Group providing a global footprint (3) Expand via partnerships, joint ventures and acquisitions in the hydrogen ecosystem (4) Grow customer relationships across all businesses to target $750 million in gross billings in 2022.

Key Risks: The company is constantly signing JVs and partnership to achieve its growth trajectory, which if goes unfavourable will negatively impact the company’s financial performance. For product development, PLUG is highly dependent on the availability and supply of hydrogen gas and third party supply of key components, stable commodity prices, product shortages, and smooth supply chain, among others. Weakness in the economy, unfavourable market trends, loss of anchor customers, and unfavourable business circumstances in international market.

As per the release on March 16, 2021, the company has determined to restate certain prior period financial statements to be included in the 2020 Form 10-K. Plug Power plans to finalize its restated financials and file the 2020 Form 10-K as soon as possible.

Valuation Methodology: EV to Sales Multiple Based Relative Valuation (Illustrative)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Technical Overview

Stock Recommendation: PLUG has delivered 6-month and 1-year returns of ~102.6% and ~565.7%, respectively. The stock is trading below the average of the 52-week high price of $75.49 and 52-week low price of $3.79, implying an accumulation opportunity. We have valued the stock using EV to Sales multiple-based illustrative relative valuation method and have arrived at a target price of low double digit-upside. We believe that the stock might trade at a discount as compared to its peer median EV/Sales (NTM Trading multiple) considering negative ROE and ROIC and higher cash conversion cycle For this purpose, we have taken peers such as Fuelcell Energy Inc (NASDAQ: FCEL), Shoals Technologies Group Inc (NASDAQ: SHLS), Aqua Metals Inc. (NASDAQ: AQMS), to name a few. Considering its scalability in integrated energy systems, order book for energy storage installation, cash flows and liquidity, we give a “Buy” recommendation on the stock at the current market price of US$29.29, up 4.68% on April 26, 2021.

PLUG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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