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The hydrogen company NEL has never made any money from what it does. Now the stock expert is warning against overpricing.
NEL has been one of the definitive winners on the Oslo Stock Exchange, with a 350 percent price increase since late 2018 (see chart below). The market value of NEL on Friday afternoon was NOK 28.5 billion.
STOCK MARKET ROCKET: NEL’s stock has risen nearly 350 percent since the end of 2018, but the company makes no money from ordinary operations.
Photo: (Front)
At most, the value has exceeded NOK 30 billion for a company that has never made any money from the operation itself. So should we, as investors, be skeptical of such action?
– Yes, I am very skeptical. For my part, the company has yet to demonstrate that it is capable of generating income, a director of critical investments, Robert Næss of Nordea Asset Management, tells Nettavisen Økonomi.
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Losing now
It is true that NEL made an accounting profit in the second quarter of NOK 594 million. However, the operating loss was 72 million. The profit is due to the fact that the hydrogen company owns 1.2 million shares of partner Nikola.
– These are shares that NEL is reserved to own, and so far in the third quarter they have lost 300 million for this concept. So almost half of the profit is gone, it continues.
– What would you recommend to small investors to observe when studying the accounts?
– I would recommend that you examine the underlying earnings. Then they have to find out if it is good enough to defend future earnings.
– It’s also perfectly fine to buy stocks in companies that CAN get big. But then you need to have a good understanding of the business, so that you have qualified reason to believe this can be great, says the chief investment officer.
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noise
Næss believes that NEL’s current high valuation contains “noise” in the form of equity earnings that say nothing about how well the company is doing.
– What matters is the underlying business of the company. NEL came in with billing that was better than analysts expected. Customer churn, excluding assistance from the authorities, amounted to NOK 137 million.
Billing is down since Q1, but Næss says NEL points out that it is due to Covid-19.
SKEPTIC: Nordea’s chief investment officer, Robert Næss, is skeptical about NEL’s high prices, because the company doesn’t make money from ordinary operations.
Photo: Nordea
– They lost money in operations, although the operating loss before depreciation of NOK 22 million was slightly better than expected. But these are only small numbers when looking at a valuation of almost 30 billion kronor.
– Then you should have a turnover of several tens of billions of crowns and preferably earn more than two billion crowns. NEL is probably far from that, warns the chief investment officer.
Opticom
Nordea has no NEL in the portfolio of funds it manages, but Næss says the hydrogen company may be one of the few companies that CAN be successful. Then the price can go higher.
– But most likely they are not a money maker, and then the course will eventually suffer the same fate as Opticom, says Næss.
Opticom is one of the largest stock bubbles we’ve had here at home, and the company rose to the top during the IT bubble around the turn of the millennium. The company had patents on technologies that it claimed would revolutionize the data storage market.
For several years, Opticom was the most popular speculative object on the stock market even though its income was practically nil. And Opticom never managed to launch any commercial products, so in a few years they went from having a market capitalization of almost NOK 30 billion to dissolving.
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Nobody beats NEL
Næss has analyzed Norwegian listed companies that have had the highest market capitalization without generating income. There, NEL reigns supreme, at least measured in current values.
– I only have an exact index composition from 2005, and there is no one who is on par with NEL. Borr Drilling hit $ 21 billion in May 2018, but then the market expected earnings to be around the corner. However, they were wrong.
– The offshore company Sevan Marine reached a value of 14 billion before the stock collapsed in 2011, while the pharmaceutical company Algeta surpassed just over 8 billion, says Næss.
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Largest NEL
The calculating chief investment officer also applied back to the ’90s, and then Opticom is impossible to beat.
– Opticom’s highest price was 2380 when I look at the closing price for the day. At the time, there were 11.2 million shares in the company, so there will be a market value of 26.7 billion.
– I found another source with course 2555. Either it is wrong or it is an intraday course. So the market value will be NOK 28.6 billion and still below what NEL was recently. Ergo, NEL has beaten Opticom, says Næss.
If Opticom’s inflation values converted to NOK 2020 are adjusted, it will be NOK 39 billion.
When Nettavisen asks CEO Jon André Løkke at NEL if the challenge is revenue, not costs, Løkke responds:
Conscious strategy
– I do not mean that the negative result is the challenge, it is a conscious strategy on our part. You have to add costs before the revenue comes in.
– When we settled in California, we hired a great team several years before we started making money. The same happened in South Korea and now we are going to build a new factory in Herøya in Norway. Then we will hire people for many months and perhaps quarters, to train, among other things, before the revenue comes in.
Løkke says this is a carefully thought out strategy, which is one of the reasons investors are interested in the company. He says they are ready to grow.
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Leader
– Why should it be more successful than others in the industry?
– We will be successful, because we have the leading technology and we run faster than the competition. And then we hope to have better people supporting this development, Løkke responds.
– How is hiring employees these days?
– It’s pretty cute. With us, they can help solve world problems at the same time that they can earn a living. Right now, the challenge of green change is central. The industry must decarbonize and we have many important tasks ahead of us.
– With big tasks, the challenge is not primarily competition. It is about prioritizing the correct use of resources, so that the focus is on the projects that are more likely to succeed and that are closer in time, the CEO responds.
Popular action
According to investment economist Mads Johannesen at Nordnet, NEL is what he would describe as public participation among its savers.
– We see an extremely high level of action in action. It is clear that many small savers buy and sell stocks in large quantities on a daily basis. As of today, we have 15,367 shareholders in NEL, but at the beginning of 2020 we had as many as 25,000, says Johannesen.
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