Time now for another look at a teaser pitch for David Fessler’s Extreme Disruptions Trader ($1,495/yr, no refunds), one of the Oxford Club “upgrade” newsletters that we first looked at when Fessler was teasing some of the hot EV charging stocks right near the February peak in the markets.
And as with last time, the tease is for a smallish stock that he thinks presents a huge opportunity as technology upends energy markets — though this time around, the real draw is storage of “liquid electricity” … so what’s he talking about?
Let’s sift through the clues and see. This is the headline push, that there’s something happening by August that will set your socks on fire:
“200X More Powerful Than Lithium… Cleaner Than Gas… Stronger Than Solar or EVs…
“History in the Making and a Tiny $3 Stock Is Behind It….
“The demand could be MASSIVE.
“Especially with a major catalyst on the horizon for the $3 stock behind Liquid Electricity… set to happen on August 26, 2021.”
And we get some name dropping to make the idea of “liquid electricity” seem real…
“Goldman Sachs analysts are saying it will be ‘the $12 trillion opportunity of a lifetime’ as it expands over the coming decades.
“Reuters calls it ‘a lottery worth playing’ for investors, saying it will ‘play a key role in the global push to produce carbon-free energy.’
“And The Wall Street Journal says, ‘Major companies are betting big.'”
So what exactly is being teased here? More from Fessler…
“A source of power that can be transported anywhere… in trucks or through pipelines… with no need to build NEW infrastructures… but simply modify existing ones.
“A type of power that can be stored in storage containers and deployed when needed… so power outages like what we saw in California and Texas never happen again….
“The U.S. Department of Energy says this fuel has…
‘The highest energy per mass of ANY fuel.'”
OK, so no big shocker here — as you might have guessed, that’s hydrogen… and the full quote from Energy.gov’s explainer on hydrogen energy storage, in case you’re curious, would be…
“Hydrogen has the highest energy per mass of any fuel; however, its low ambient temperature density results in a low energy per unit volume, therefore requiring the development of advanced storage methods that have potential for higher energy density.”
We’ve gone through a little bubble cycle in the last year or two in hydrogen-related stocks, primarily the fuel cell companies like Plug Power (PLUG) and Ballard Power (BLDP) but also the truly hyped-up stories like Nikola (NKLA), and we still get questions about some of the older “blue gas” teasers that continue to circulate, but this one is a little different — there are transportation components to it, but Fessler is really pitching the energy storage potential of Hydrogen. Sorry, I mean of “liquid electricity.”
And the demand for energy storage is, of course, enormous — particularly as we begin to rely more and more on the kinds of electricity generation that can’t yet serve as “base load” sources of power because they’re not constant, like solar power or wind power. To make a solar plant a reliable 24/7 provider of electricity like a nuclear power plant or a coal-burning generator or a hydropower dam, you need energy storage to make sure that the supply of electricity will be there at night, or on cloudy days. Here’s how Fessler puts it:
“… wind and solar technologies can work well… in the right conditions, with the right weather.Are you getting our free Daily Update
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“The problem is… you need a way to store excess electricity when too much is being produced.
“And then you need to be able to tap into that energy storage when you aren’t producing enough.
“And that’s exactly what my little $3 company – and Liquid Electricity – is doing today.
“It has designed something incredible.
“A machine that can hook up to our existing power grids… and, using simply water and electricity, convert excess power into storable fuel!”
What is this magical machine, you ask? An electrolyzer, which uses electricity to split water molecules into hydrogen and oxygen… so in this case, the output, hydrogen which can be used as a fuel either by burning or in a fuel cell, can be stored in a tank for future use, thereby storing some of that original electrical energy. You lose some energy every step along the way, but if the original energy was going to be wasted (like solar power that can’t be otherwise stored or used at the moment it’s generated), then it’s kind of like a way to put those sunbeams in your pocket for the nighttime.
There are lots of ways to do this kind of bulk energy storage, of course, and they have varying cost — you can use actual banks of batteries, you can use the electricity to create hydrogen and then store the hydrogen, you can use the solar power to pump water up a hill and then store it behind a dam, using it to generate energy through a turbine using gravity… well, you get the idea. They all have cost, they all waste some of the electricity, but they all allow for the energy output from a non-constant source, like a windmill, to be made more steady and predictable.
Electrolysis is not something that was invented a couple years ago by some secret little company, to be clear, I think the first time someone used electricity to split water into hydrogen and oxygen was in the late 18th century… but yes, of course, technology constantly improves and things become more feasible with each advancement (the first fuel cell car, after all, was invented more than 50 years ago… and though there are some commercial fuel cell cars today, like the Toyota Mirai, they’re still not really ready for prime time, partly because the infrastructure remains limited).
Here’s how Fessler explains the magic…
“It quite literally liquefies the excess energy.
“Through a process called electrolysis….
“The electrolyzer is filled with water and begins to channel electricity…
“The water reacts and forms oxygen…
“And one other key element… perhaps the single most important element in the history of science.
“The electrolyzer produces positively charged hydrogen.
That positively charged hydrogen is a SUPER-FUEL, charged and ready to be stored or put into vehicles!”
So what’s the idea? Fessler thinks this is on the verge of mass production and mass use for energy storage…
“… as they keep capping our power grids with electrolyzers…
“Using Liquid Electricity to create more and more super-fuel…
“Countries could begin developing MASSIVE power reserves…
“Which can then be stored or put to immediate use in fleet vehicles, power plants or even entire cities!”
OK, so a little larger-scale than the “ammonia is the fuel of the future” pitch we looked at a few months ago (also using the term “liquid electricity”)… but the same basic idea: something that has been theoretically possible for centuries is about to become commercialized, and it’s gonna be big (and we’ll ignore some of the logistical challenges that have slowed these theoretical advancements over the decades — like how corrosive ammonia is, or how explosive and expensive to store hydrogen can be).
So what’s this secret company? Here are our clues…
“… it builds electrolyzers that can be distributed around the globe. These electrolyzers utilize the process I’ve been telling you about today: what I call Liquid Electricity.
“As we speak, the company is already operating the world’s LARGEST electrolyzer plant, a cutting-edge facility that can produce electrolyzers that can create 500 megawatts of Liquid Electricity each year.”
OK, that narrows it down quite a bit… other hints…
“Nikola, an electric trucking company, has become one of its biggest customers already.
“It signed a contract for 448 electrolyzers produced at the factory.
“The Department of Energy issued a grant worth $4.4 MILLION.
“This company has also partnered with Tenaris, a truck manufacturer in California. Tenaris designs trucks to run on the energy that comes from Liquid Electricity.”
And it’s apparently not a well-known stock…
“I should let you know now that you’re not going to find this stock listed on a blue chip exchange.
“It’s $3 and still under the radar for the moment.
“It sells under an unusual five-character ticker symbol.
“Most Main Street investors aren’t aware of it.
“And that’s how all the institutional investors want it… so they can keep gobbling up $3 shares… quietly… and unnoticed.”
That’s a little silly, of course. Companies do not stay on minor exchanges or list outside the US just to give institutions time to buy up shares quietly.
We also get a few financial tidbits from the company’s results:
“… this company’s revenue and income were up 30% from its previous fourth quarter earnings….
“The company’s order backlog is up 90% year over year.
“I saw orders for its electrolyzer technology jumping off the page.
“It now has more than 3,500 installed around the world!”
And even a quote from leadership:
“The CEO reiterated the company has a ‘strong long-term outlook’ on its earnings call.”
When was the last time you heard a CEO say he was pessimistic about the long term, just out of curiosity?
It’s OK, I’ll give you time to plumb your memory.
Nothing? Yeah, me neither. But still, it’s a clue.
And what’s the deal with that August 26 deadline that Fessler uses? Is it just one of the typical “false urgency” deadline that copywriters use to get our attention (and get us to pull out our credit cards)? Apparently there’s something actually happening around that time… here’s the detail from the ad:
“… it’s VITAL to get in before AUGUST 26, 2021.
“Because in the second quarter of this year…
“This company hopes to flip the switch on the VERY FIRST test phase of the world’s ONLY autonomous plant… a fully operational, 100%-automated facility making these electrolyzers…
“Literally the first of its kind in the world!!!
“And I predict this automated factory will be a massive moment for the company…”
And we’re told that this company has rising revenue, high cash balances, and, of course, that it’s somewhere in the $3 neighborhood. So what’s the stock?
Thinkolator sez this is the Norwegian hydrogen technology company Nel, which is listed in Oslo at ticker NEL and trades over the counter in the US at NLLSY for the unsponsored ADR (very low volume ADR, each share equals 30 shares in Oslo) or NLLSF (decent volume, 1:1).
If you do decide to trade this particular stock OTC, your best chance at a “fair” price comes if you place an order when the Oslo market is still open (so, between 9:30-10:30 am EST), and use a limit order that’s close to the current live price in Oslo, adjusted for the exchange rate — sometimes relatively small foreign stocks trade at “off” prices in the US when there isn’t much volume, so market orders could end up in disappointment (meaning, you could overpay pretty substantially). NLLSF has traded in fairly strong volume in the past week, and at mostly “close to fair” prices, probably in part because of Fessler’s attention, but there have been days in the past year when it traded hardly at all and price quotes might not have been accurate. And the cardinal rule for relatively illiquid foreign stocks that trade OTC? They’re a lot easier to buy than to sell — it might be hard for your broker to find a buyer if you want to sell in a hurry for some reason, especially if the Oslo market is closed at the time you’re trying to sell or if a lot of other folks are all trying to sell at once.
With that general caveat out of the way, though, what’s the story with Nel? Here’s how they describe themselves:
“Nel is a global, dedicated hydrogen company, delivering optimal solutions to produce, store and distribute hydrogen from renewable energy. We serve industries, energy and gas companies with leading hydrogen technology. Our roots date back to 1927, and since then, we have had a proud history of development and continuous improvement of hydrogen technologies. Today, our hydrogen solutions cover the entire value chain from hydrogen production technologies to hydrogen fueling stations, enabling industries to transition to green hydrogen, and providing all fuel cell electric vehicles with the same fast fueling and long range as fossil-fueled vehicles – without the emissions.”
And yes, as far as I can tell they are the largest pure play hydrogen electrolyzer manufacturer in the world, and the largest manufacturer of hydrogen fueling stations… both markets that have been quite small but are growing rapidly right now, mostly because of the push for ‘clean energy’ projects.
It’s not as though they have the market to themselves, though — there are lots of large-scale industrial companies working on hydrogen projects in one way or another, including US giant Cummins (CMI), and there’s even another similarly-sized pure-play hydrogen electrolyzer manufacturer… that’s ITM Power (ITM in London, ITMPF OTC in the US), which is most well-known for its joint venture with Linde to build what they say will be the largest operating electrolysis plant when it’s done next year. ITM’s latest investor presentation lays out very similar goals to Nel in terms of increasing production and lowering prices to help build the hydrogen economy, they’ve also made “largest factory” claims over the past couple years, and the forward-looking valuation is fairly similar in some ways… Nel is definitely the better match for Fessler’s clues, and the one with better current financials of the two, but the companies have a lot in common.
And if you have any doubts about whether it’s a thematic interest in a trend or a specific company’s financials that drives a “story” stock like these, here’s the chart for Nel (orange) and ITM (blue) over the past year… two peas in a pod, and we could have thrown Ballard Power (BLDP) in there as well and seen pretty much the same pattern:
Though, to be fair, ITM has been more of a “come from nothing” story that is just beginning to have a business, and Nel a more established small-scale manufacturing story with a fairly steady level of revenues (roughly 10X ITM’s revenue) if you go back more than a year… this is the three year chart:
Nel is a decent-sized company in the grand scheme of things, with a market cap of $3 billion, and they have been gradually growing their top-line revenue for years — though they haven’t yet reached an operating profit. They are well cashed-up for their continuing expansion efforts, with pretty big capital raises both last year and this year bringing the total cash to almost US$400 million as of March 31, so they do not appear to be terribly fragile or risky on that front.
And yes, the stock was at US$3 or so about a month ago (roughly 25 Norwegian Krone), though dropped considerably following their first quarter report, so you can buy it closer to $2 now if you’re interested (~18 Krone). Analysts are predicting revenue growth of about 50% both this year and next year, though revenue was below estimates in the first quarter and they are not expected to be profitable in the next couple years.
The latest quarterly press release is here, and that does confirm the 80% growth in their backlog (which stands at about 1 billion Krone — roughly US$130 million)… here’s the CEO quote from that press release:
“The first quarter marks the start of an important year for the Nel and the industry, as we are moving from ambition to deliveries. While our short-term operations, production, and installations are affected by the pandemic, the Q1 financial performance is in line with the outlook, and we continue to deliver on our strategy. The Herøya expansion project is progressing according to plan, and the announced EPC-partnerships are enabling Nel to strengthen the delivery and execution capabilities of large-scale, complex projects globally. These are important elements that will enable us to deliver on the announced 2025 cost target for green hydrogen production at USD 1.5/kg.”
That Herøya expansion project is the “fully automated manufacturing facility” that Fessler hinted at… I don’t know that there will be a particular “green light” moment for investors when it comes to that facility, but they are planning to begin test production this quarter and ramp up commercial production next quarter… so maybe that will be August, who knows. I expect he pulled that date from the fact that Nel reported its second quarter earnings on August 26 last year, so it will probably be close to that date this year. You can get some more detail and color on that story from Nel’s webcast of the Q1 2021 results here if you’re curious.
As I see it, it is indeed an interesting story, they are right in the middle of trying to ramp up production to meet some big orders and be ready for substantially more commercial demand, and they have some interesting partnerships with big customers like Iberdrola and First Solar… as well as a potential framework for some work with established energy contractors Aibel and Wood that could lead to larger hydrogen projects. And yes, they do think that they can offer electrolyzers at ‘game-changing cost’ when they get their factory expansion running, a project which they say is “on track” for next quarter.
I would be a little surprised if this is a fast-moving story for investors, since these projects take a long time to get built and they’re really shooting to be ready for low-cost scale in three or four years to compete with fossil fuel prices… and it wouldn’t be at all surprising if some of those big orders (like Nikola’s from a few years ago) don’t end up materializing… but they do have an ambitious plan to install production capacity that they believe is 5X what the market demand was in 2019. They are focused on being a leader of that future hydrogen economy, but they’re going to lose a lot of money this year as they try to get there, so it wouldn’t be surprising if investors have a hard time being patient.
I haven’t gotten myself comfortable with the valuation at this point, and the details of how they might build to profitability are currently not so clear to me, but it’s an interesting idea that might be worth some more research… and as far as “liquid electricity” teases go, this one strikes me as at least a lot less sketchy than the ammonia version back in February (Nel is working on some ammonia projects as well, for whatever that’s worth, and ammonia was their first application of their technology — though that was for fertilizer, still a much larger market, not energy storage).
That’s just what I think, though, and it’s your money at stake — ready for hydrogen to become a meaningful part of the energy infrastructure, either as storage for renewable electricity generation or as a transportation fuel? Think the world is ready, and that demand will explode in the next couple years? Or is this just another promised “tipping point” that won’t actually tip all the way over into changing the world, and maybe the promise of the “hydrogen economy” will be dashed again? Let us know your thoughts with a comment below.