It may well be the case that Plug Power has itself triggered the fall in the price of its shares that occurred in recent weeks, as described in detail and substantiated by a report (Seeking Alpha dating from 2.9.2015). In detail: 1. The takeover of HyPulsion, the European joint venture with Air Liquide for US-$ 11.5 m. was settled in shares (6.4 m. units due to the fall in the share price instead of the originally planned 4.8 m. shares), whereby it had already been made clear that the Air Liquide subsidiary, Axane SA, would register these shares and sell them on the stock exchange. Plug would have been better off paying the US-$ 11.5 m. in cash – with more than US-$ 100 m. in the bank this wouldn’t have been a problem – than issuing shares which put pressure on the share price. This was a perfect argument of the short sellers, or the investors, who made the most of the falling prices at Plug: more than 34 million shares were sold short. Air Liquide continues to hold around 5.6 m. shares in Plug, and wants to hold onto them as a “strategic partner”, according to the prevailing opinion. Also interesting to note: they are now working with Jungheinrich in Europe.
2. Cash holdings: the most recent quarterly result showed a cash outflow of around US-$ 22 m. to approx.US-$ 109 m. This includes more than US-$ 10 m., however, that are required as security deposits for financing operations (including leasing transactions). This means that purely in accounting terms, Plug has set aside around US-$ 120 m. for a “rainy day”. US-$ 10 m. are considered to be a realistic quarterly outflow of cash, to finance the growth of the company from its own resources (development of the production systems, personnel, etc.). The raising of capital via so-called secondaries/offerings is not necessary in the foreseeable future. Here, the short sellers have taken the quarterly outflow of capital as the basis for their line of argumentation that Plug could run out of money and another weakening would then occur through the issuing of new shares – which should be taken with a pinch of salt!
3. Major orders, including Walmart & Home Depot: both of these companies have more than 100 logistics centers which are being upgraded from battery operation to fuel cell operation on a step-by-step basis. The stock exchange expected the announcement of major orders and oversaw/has overseen the fact that both companies are converting all of their logistics centers on a step-by-step basis, and have therefore taken the basic decision to focus fully on fuel cells, since operations using hydrogen pay off after just one year (conversion), enabling appreciable cost reductions and allowing environmental commitments to be achieved. It can thus be assumed that with these two major companies alone (with many others set to follow, for some of which initial orders already exist), Plug has the potential to secure orders to the value of hundreds of millions of dollars. At the moment, according to its own announcements, this year, Plug has received (existing) orders to the value of US-$ 206 m. of which US-$ 100 m. will be implemented. Plug is converting the logistics centers of a range of major customers, but has also apportioned them so as to avoid being overly dependent on a single customer. Its commitment is therefore proportional: x centers for customer X, y centers for customer Y (meaning, for instance, 6 logistics centers p.a. for Walmart, 4 for Home Depot, 3 for Kroger etc.). This means they are growing with different customers at different places without focusing all of their capacity on a single address. This approach will be taken into account with its value on the stock exchange.
The bottom line: everything is okay. Plug will continue to focus on achieving a growth rate of 40 % plus p. a. and on consistently increasing its profit margin. It is expected to break even and to thus become profitable in 2016. In the short or long term, the shares that were sold short, numbering more than 34 million, could eventually be the turbo for significantly higher quotations (squeeze in the event of good news).
Note on risk
When investing in shares, every investor must make their own risk assessment, and ensure an appropriate spreading of the risk. The FC companies and/or shares stated here come from the area of small and mid-caps, which means that they do not constitute standard values and their volatility is far higher. This report does not provide purchasing recommendations – and no guarantees are made. All of the details are based on publicly accessible sources, and in terms of the forecasts they only represent the personal opinion of the author.
This analysis was written in September 2015 by Sven Joesting.