Upcoming NEOM Project And SOEC Technology Will Strengthen Position In Green Hydrogen Market

Key Takeaways

• Strategic partnerships and R&D investments in SOEC technology position thyssenkrupp nucera for growth and improved margins in the hydrogen industry.
  
• Asset-light model supports quick market adaptation and growth in green hydrogen, with strong execution in projects boosting future earnings.
  
• Regulatory challenges and reliance on a few large projects may impact revenue and earnings stability, while R&D spending pressures margins.

Catalysts

Engages in the development, engineering, procurement, commissioning, and licensing of high-performance electrolysis technologies in Germany, Italy, the Middle East, Africa, South America, Asia, and internationally.

• The strategic partnership with Fraunhofer IKTS to commercialize SOEC technology positions thyssenkrupp nucera for growth in the hydrogen industry. This innovative technology, supported by significant EU funding, could lead to increased future revenue streams and improve net margins by diversifying the company’s technology portfolio.
  
• thyssenkrupp nucera's asset-light business model and global presence enable it to quickly adapt to changing market conditions and capitalize on growth in the green hydrogen sector. This flexibility in operation is likely to enhance sales growth and optimize earnings in the coming years.
  
• The chlor-alkali business remains strong, with high-profit margins supporting revenue growth. Continued expansion in production capacity and new orders, particularly in the U.S. and South America, could sustain revenue and margin improvements.
  
• The company's progress in major projects such as the NEOM project and new service contracts in AWE underline strong execution. Expected improvements in AWE gross margins driven by a more profitable project mix could positively impact earnings.
  
• Thyssenkrupp nucera's increased investment in R&D to enhance alkaline water electrolysis and SOEC technology, along with plans for larger modules and automation, aims to bolster competitive positioning and reduce costs. These efforts could lead to higher future revenue and improved net margins as market demand rebounds.

thyssenkrupp nucera KGaA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming thyssenkrupp nucera KGaA's revenue will grow by 13.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.3% today to 4.2% in 3 years time.
• Analysts expect earnings to reach €52.1 million (and earnings per share of €0.41) by about January 2028, up from €11.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €70 million in earnings, and the most bearish expecting €36.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.4x on those 2028 earnings, down from 104.4x today. This future PE is greater than the current PE for the DE Construction industry at 27.9x.
• Analysts expect the number of shares outstanding to decline by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.24%, as per the Simply Wall St company report.

thyssenkrupp nucera KGaA Future Earnings Per Share Growth

Risks

• The company acknowledges that the initial excitement around the green hydrogen market has settled into a more realistic understanding of growth rates, which could potentially affect future project timelines and revenue expectations.
  
• Regulatory challenges, such as stringent rules for producing green hydrogen in certain markets, could impact project profitability and lead to cancellations, as seen with the Finnish company Neste, potentially affecting future revenue streams.
  
• Anticipated delays in final investment decisions (FIDs) for hydrogen projects, due in part to regulatory and infrastructure uncertainties, may lead to delays in project execution and revenue recognition.
  
• The significant R&D spending, combined with ramp-up costs and increased SG&A expenses, could pressure net margins and impact earnings, especially if anticipated revenue growth does not materialize.
  
• The company's reliance on a few large projects, such as the NEOM project, means that delays or issues in these projects could disproportionately impact sales and earnings stability.

Valuation

• The analysts have a consensus price target of €14.08 for thyssenkrupp nucera KGaA based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.0, and the most bearish reporting a price target of just €8.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.3 billion, earnings will come to €52.1 million, and it would be trading on a PE ratio of 39.4x, assuming you use a discount rate of 5.2%.
• Given the current share price of €9.09, the analyst's price target of €14.08 is 35.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.