Nothing burns better: Investors could dust incredible profits over the past few quarters if they turned to a fuel cell specialist like Ballard Power (WKN: A0RENB) have set. In a year and a half the course has increased almost tenfold. But he has given up a third of the recent high in the past few days.
For some, this gives them reduced entry chances again. But caution is still required. In principle, the price could drop much further.
What is going on with the Ballard share
The Ballard sales team has had a lot of success. Technology of the fuel cell pioneer is in more and more vehicle platforms, from the Mireo trains from Siemens (WKN: 723610) via Solaris buses to various Chinese truck models.
The sales volumes are not yet particularly high, but with the expansion of the infrastructure, demand should increase in step with it. Wrightbus recently ordered 15 modules. China, in turn, received a larger order for a core component of fuel cell systems (membrane electrode assemblies).
Ballard’s business model validates that all international truck groups are now involved in the introduction of fuel cell trucks. The many lossy years should soon come to an end. With the order backlog growing continuously, it should be possible to post profits in the foreseeable future.
Above all, the good positioning in China looks promising. Building on the already established business relationships with several local bus and truck manufacturers, the joint venture with major shareholders is currently under way Weichai Power (WKN: A0M4ZC) put into operation. In this constellation, the chances are excellent that Ballard can defend large market shares in this important market.
How the competitive environment is now condensing
But the competition doesn’t sleep. For example Toyota (WKN: 853510) forged a joint venture with four large local commercial vehicle manufacturers in June. The partners want to develop standardized fuel cell systems in order to ensure the necessary quantities. With almost every type of vehicle in the Toyota realm, from forklift trucks to 40-ton trucks, the Japanese are well positioned to drive expansion now.
However, Bosch also has similar ambitions PowerCell Sweden (WKN: A14TK6) and Hyundai Motor (WKN: 885166). All of them are now investing heavily in creating networks, improving technology and cost-effective mass production. There are also technologically strong players like ElringKlinger (WKN: 785602), who could soon play big with the right partner.
According to a VDMA study, sales volume will swell to 10 million systems annually by 2040. Ballard and the other competitors named here all have the potential to capture more than 10% of this market. However, it is far from foreseeable who will actually end up at the top. In addition to the scenario that Ballard will be the highly profitable champion, we also have to take into account that Canadians fall behind the competition and can only generate small margins.
How low the Ballard share can still fall
In the first quarter of 2020, sales were still fairly thin at $ 24 million, and even based on the adjusted operating profit before depreciation, no increase could be reported. The order book is still not really impressive: It dropped to $ 170 million as of March 31, of which $ 106 million will be shipped shortly.
It remains to be seen whether the growth hopes will come true. It is clear that many operators in public transport are being pushed to their limits by the current crisis. It is also questionable to what extent the low tide to be found in public coffers in many places allows high investments in hydrogen initiatives, funding programs or not.
But even if Ballard is now growing at double-digit rates, it could still take many years before the billion dollar threshold is exceeded. At the same time, increasing competition is likely to make it difficult to expand margins. After all, it is difficult to differentiate with a purely functional product like the fuel cell. Reliability and price are the most important criteria.
For example, suppose Ballard has a 10% global market share in 2040, delivers one million fuel cell systems, and the bottom line is $ 250 profit per unit. That would add up to a profit of $ 250 million and a valuation of $ 5 billion would be realistic. That would be significantly more than the current $ 3.5 billion (July 31).
However, if we expect a reasonable return in the 8% range, a much lower price would be required. If the assumptions go through as a medium scenario, a fair market cap would currently be closer to $ 1 billion, which is a price of $ 4.40.
If you also think about the fact that necessary equity increases and an expansion of the trade war could worsen the picture at any time, a significantly lower price is conceivable – especially since as an investor you always have to expect exuberant momentum in both directions.
Basically, I think Ballard is great and I can’t rule out that it conjures up other deals and technologies that further brighten the picture. Sales would then increase to 2 million annually by 2040, with a profit of $ 500 apiece. In this case, the current rating would be justified.
But it is more likely in my eyes that sooner or later disillusionment will occur, which will give us a much cheaper course level.
The post Ballard Power takes a fundamental look: How low the stock can still fall appeared first on The Motley Fool Germany.
Ralf Anders participates in Siemens’ share performance through an index certificate he manages. The Motley Fool does not own any of the stocks mentioned.
Motley Fool Deutschland 2020