Plug Power sees itself as a generalist: from H2 production to liquefaction technologies, own electrolyzer production, construction of H2 refueling trailers and stations, and the manufacture of FC stacks for motor vehicles and forklifts. That is the one side of the coin. On the other side, there are various gigafactories that are being built with considerable investment, and require time until sales and profits are generated. In the transition period, high losses will be reported, which can partly be explained with the establishment and expansion of the company. A look at the liquidity alone shows that Plug may have to issue further shares this year in order to finance the company's ambitious targets, as in addition to capital investment in factories, the large number of strategic acquisitions also cost money.
A sharply rising share of the liquidity – nearly 900 million USD – is not freely available but classified as “restricted” and thus frozen as collateral. On the other hand, Plug certainly has other ways of obtaining new liquidity. I am thinking of sale-leaseback agreements, but also of government support programs and loans under the Inflation Reduction Act. The issuance of a green bond as a convertible bond is also well conceivable.
Figures for the first quarter
Plug Power has presented quarterly figures that contradict the often very full-bodied statements of the executive board. A 210 million USD turnover in Quarter 1 sounds good in comparison to the same period last year. At the same time, however, the loss increased to over 200 million USD, which corresponded to a minus of 0.35 USD per share (GAAP). The wording of the publications gives me the feeling that they want to teach investors in small doses that the short term goals have to be cut back on.
Nevertheless, Plug will continue on its way in hydrogen and develop great potential here, as they are working on a variety of production facilities for stacks, electrolyzers and even hydrogen. My criticism is that Plug is working on too many construction sites at the same time, so capital is being stretched thin and therefore makes additional capital increases or procurement measures likely.
A number of forecasts have already had to be conceded, just as many an order has been canceled and some orders were not able to be collected in the end. Even the recently received orders for three electrolysis plants in Europe (among others, for a steelworks in Bremen with Apex Energy) does not change the overall picture. In the case of various strategic acquisitions, a certain period of integration is required before a positive contribution margin can be achieved.
In addition, Plug’s relationship with companies like Walmart and Amazon, for whom it retrofits forklifts, is still too one-sided. But this is a temporary negative for me, as Plug is also supplying the liquid hydrogen here and will probably continue sale until the time it can produce the hydrogen itself and earn real money from it. I think – not claim – that it’s the two big customers Amazon and Walmart that could have hedged their very high book profits with the exercise of over 100 million stock warrants through the short sale of shares, since Plug’s short interest lies at over 100 million shares. This combination of customer relationship simultaneously mixed with incentives through warrants for Plug shares raises some questions, including about the tax handling, as Plug continually records charges based on the fair value movement of the warrants on the quarterly financial reports.
Summary
Still not a buy. Alternatives are offered by companies or company shares like Bloom Energy, as their outlooks are clearer and more predictably implemented. Until Plug delivers figures that correspond to expectations could be a while still. Many other forecasts that have been given up on substantiate my critical stance. My forecast that the stock market value of Plug could match that of Bloom is coming increasingly into visibility: Plug was valued at over 15 billion USD and now around 5 billion USD, while Bloom from over 4 billion USD has also slid deeper to a 2.7 billion USD valuation, but in view of the expected figures, has the chance, based on the revenue multiple and the forecasted turnover of 1.5 billion USD in 2023, to become higher valuated than Plug. Meanwhile, Plug expects a 2023 turnover of 1.2 to 1.4 billion USD. It’s a bet.
Disclaimer
Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.
Written by Author Sven Jösting, June 9th, 2023
