Hydrogenics versus ITM Power

Simon Bourne
Simon Bourne in the ITM container, © ITM Power

Canadian producer Hydrogenics (Nasdqaq: HYGS) and British manufacturer ITM Power (London: ITM) aren’t entirely comparable, but they use similar technologies. There are some commonalities in the form of power-to-gas projects, hydrogen stations and powerful electrolyzers to generate the gas. Their market caps aren’t as far apart as I would expect based on the number and contract value of bookings. Both stocks have experienced severe price drops. ITM Power’s shares have fallen from more than GBP 0.56 to under GBP 0.40, while Hydrogenics’ have dipped from more than USD 12 to around USD 8. The two companies have several first-rate customers, but in contrast to ITM, Hydrogenics has also been involved in projects to design road vehicles, or, more specifically, fuel cell trucks, and trains, in collaboration with Alstom. Likewise, it has a considerable foothold in China, as a Chinese corporation has become one of its major shareholders.

In short, I recommend Hydrogenics over ITM, although the British manufacturer’s price decline will possibly come to a halt soon. However, ITM’s stock of over 320 million shares seems a bit excessive to me and the contract value of bookings is merely a fraction of Hydrogenics’. Moreover, I see the Canadian producer as a takeover target because a partner such as Alstom could be interested in acquiring the company’s railroad know-how. Ballard would be another ideal buyer, in my opinion. Both Ballard and Hydrogenics hail from Canada, have made major investments in China and possess top-notch fuel cell expertise. Additionally, Hydrogenics’ range of electrolyzers would be a good addition to Ballard’s portfolio, since the latter could offer customers hydrogen production facilities following the acquisition of the former. Hydrogenics is shaping up to be the much better deal, especially after the price drop.

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Risk warning

Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small and mid-cap ones, i.e., they may experience high stock volatility. This article is not to be taken as a recommendation of what shares to buy or sell – it comes without any explicit or implicit guarantee or warranty. All information is based on publicly available sources and the content of this article reflects the author’s opinion only. This article focuses on mid-term and long-term prospects and not short-term profit. The author may own shares in any of the companies mentioned in it.

Written by Sven Jösting, February 2018

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