From the house of Siemens Energy, we’re reading about various projects which, in our view, address many new markets in the field of hydrogen. These involve, for example, the construction of an electrolysis plant where the resulting waste heat can be used for a heat pump and, with this and the production of hydrogen, an overall efficiency of 98 percent can be achieved. Along with Evonik, Siemens Energy also plans to research an innovative H2 technology in the industrial space, for which a new type of electrolyzer is to be developed as part of a pilot project. It involves the production of green hydrogen as a starting product for the manufacture of isophorone diamine (IPDA), which is a raw material used in the production of wind turbine rotor blades. A PEM electrolyzer with a capacity of 8 MW at the colliery Zeche Hannibal (project H2annibal) is to supply 45 percent of the green hydrogen required and, in addition, 100 percent of the oxygen required. A 12,000 tonnes of CO2 are to be avoided through this project.
High order intake – Healthy sales growth
The number alone is already remarkable: 102 billion EUR of orders on hand after the huge plus of over 12.3 billion EUR in the quarter just passed. All the same, a turnover of 8 billion EUR after the 6.5 billion the year before. That makes a significant plus of 24 percent. A loss of 189 million EUR was the result after the second quarter, which includes the loss reported by the wind subsidiary of 374 million EUR.
That the company is not yet in the black rests on the still to be fully integrated Gamesa, which still has to overcome the past, as cost increases for steel and components to fill current or past orders cannot and could not be passed on to the customers. On top of that are costs incurred for the reorganization (release of personnel, supply chain issues). But that will change with new orders, which will be calculated differently and take into account the high growth of the wind industry worldwide. The transition to the profit zone is foreseeable in the next two years. The stock exchange sees it the same.
Siemens Energy is a clear winner in what is being launched worldwide in terms of hydrogen-related projects. There too could wind power via electrolysis produce cheap hydrogen offshore and Siemens Gamesa create further future potential with it, as Siemens Energy also possesses a strong foothold in electrolysis. Consider: Without Siemens Gamesa, Siemens Energy is indeed profitable, but the turnaround at the wind subsidiary, or this business division, represents a major earnings potential that will be unlocked once this unit achieves sustainable profitability. That this will happen is a result of the wind turbine market, which is growing very strongly. Siemens Gamesa envisions good opportunities for some big orders from there.
“The success of the wind business remains the fundamental prerequisite for us becoming a profitable market leader in the topic of energy transition.… From there is coming a market that will become a wave.”
Siemens Energy CEO Christian Bruch
For me, it is clear that the circle in which the company as a one-stop shop can supply the customer in matters of energy, hydrogen and their various use potentials according to the motto “alles aus einer Hand,” is closing. Ultimately, it is companies like Siemens Energy that are increasingly bought again in the portfolios of large capital management firms such as Blackrock, as you see high growth here and can link the whole thing to the term sustainability.
My target price of 30 euros could manifest sooner than expected. Long-term, we see much higher prices here. And perhaps the share price development of Siemens Energy (from 10 to 24 EUR) is the blueprint for the other companies discussed here.
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