Summary
- Four negative key takeaways to be priced-in.
- Top-line sales were down for the Fueling division. Nel ASA's margin pressure continues.
- We are moving forward the company's break-even point to 2026. Therefore, we reduce our valuation.
Before commenting on Nel ASA's Q3 performance (NLLSF), we would like to report the following key takeaways:
- During the half-year result with the new CEO Hakon Volldal, there was a strategy announcement to move forward on stack production. According to our estimates, this will limit the average selling price by 30% with gross margin impacted too. We now forecast an EBITDA break-even point in 2026 (from 2025);
- Related to point 1), we are expecting an additional equity raise before 2025;
- For the above reason, Wall Street estimates downgrades are likely to continue - Nel ASA's stock price probably has still too much expectation priced in;
- In addition, the former company's CEO and current board member Jon Lokke has disinvested almost 75% of his stock during the year. Thus, investor sentiment is likely negatively affected by this development;
- On the quarterly upside, as already mentioned during the half-year comment , the geopolitical situation and the ongoing energy crisis are positively influencing Nel ASA's business with order wins from European IPCEI (Fig. 1) and the US climate bill called IRA (Fig. 2). As a memo, in mid-July, the EU authorized a €5.4bn fund to support Important Projects of Common European Interest with 41 projects and joint collaboration across 15 state members.
Fig 1
Source: Nel ASA Q3 results (Fig 2)
Q3 Results
In our previous analysis, here at the Lab, we were not very positive. It's not coming as a surprise to see that Nel ASA's negative trend has been maintained. Compared to the Q2 results, turnover was down versus Q3 2021 but costs were higher. Looking at the just-released report, we do have a better disclosure compared to the Q2 presentation.
- Top-line sales were flat in the Electrolyser division and recorded a negative performance in the Fueling segment with a minus 57% compared to last year's end quarter (Fig 3);
- Once again, EBITDA was significantly down and stood at NOK -214 million compared to the NOK -113 million recorded in Q3 2021. Already in Q2 results, we were forecasting higher ramp-up costs, more headcounts, and ongoing logistics constraints. With the latest disclosure, we understood that current margins were also negatively influenced by low-margin contracts signed during the 2020/2021 period;
- Cash & cash equivalents reached NOK 3.520 billion against 2.930 billion in Q2 2021. However, the company's cash was down on a quarterly basis;
- An all-time record in the Nel ASA's order intake achieved NOK 775 million in the quarter, bringing the total backlog at 2.103 billion (Fig 4).
Fig 3
Source: Nel ASA Q3 results (Fig 4)
Conclusion and Valuation
Rolling forward our estimates and moving Nel ASA's break-even point to 2026, we further reduce our target price to NOK 12 per share, continuing to prefer Industrie De Nora’s diversification, profitability, and supportive backlog.
For further details see:
Nel ASA: Q3 First Impression