Hydrogen Fleet Adoption And Regulatory Delays Will Challenge Operations Yet Eventually Support Modest Upside

Catalysts

About Cavendish Hydrogen

Cavendish Hydrogen provides hydrogen fueling stations and related services to decarbonize heavy-duty and public transport fleets globally.

What are the underlying business or industry changes driving this perspective?

• Although utilization at key bus and truck stations in Germany, the Netherlands and Poland is rising sharply, the company still relies on a limited number of high volume sites. This concentrates revenue growth and leaves overall topline exposed if any large fleet contracts are delayed or cancelled, constraining revenue acceleration.
• While European regulations for alternative fuels and renewable transport are triggering more generous subsidies and higher announced station targets, the slow and fragmented implementation across member states risks protracted tender cycles and postponed projects. This could keep order intake volatile and delay earnings leverage.
• Although Cavendish is benefiting from the structural shift to low emission heavy mobility and has demonstrated reliable operations with record dispensed volumes, many stations remain in early demonstration phases with low throughput. This extends the path to scale and limits near term improvement in net margins.
• While recent wins in Italy and continued growth in Poland show that large bus and heavy duty fleets are beginning to adopt hydrogen at scale, dependence on a narrow set of early adopter regions means that any policy reversals or budget cuts in these markets could stall the broader rollout and cap medium term revenue growth.
• Although the company is helping to shape global standards for high flow hydrogen fueling and has streamlined its footprint by exiting South Korea, monetizing this technical leadership requires a stronger and more diversified project pipeline. Without a sustained pickup in new station orders, fixed costs may continue to weigh on EBITDA and overall earnings.

Assumptions

This narrative explores a more pessimistic perspective on Cavendish Hydrogen compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Cavendish Hydrogen's revenue will grow by 22.3% annually over the next 3 years.
• The bearish analysts are not forecasting that Cavendish Hydrogen will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Cavendish Hydrogen's profit margin will increase from -120.6% to the average NO Electrical industry of 5.4% in 3 years.
• If Cavendish Hydrogen's profit margin were to converge on the industry average, you could expect earnings to reach €2.0 million (and earnings per share of €0.06) by about December 2028, up from €-24.7 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from -0.9x today. This future PE is lower than the current PE for the NO Electrical industry at 54.9x.
• The bearish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Order intake for new stations has been weak for some time, management expects revenue to be somewhat lower than the already modest 4.1 million euros reported this quarter, and the backlog has been cut due to highly uncertain commissioning timelines, all of which could suppress revenue growth and delay any improvement in earnings.
• The business is increasingly dependent on a limited number of high utilization sites in markets like Germany, the Netherlands and Poland while many other locations remain low volume demonstrations, so any slowdown in these core hubs or failure to broaden adoption could cap dispensed volumes and constrain both revenue and net margins.
• Despite strong secular support from EU regulations and subsidies, implementation across member states is acknowledged to be slow and subject to delays, meaning the anticipated buildout of hundreds of hydrogen stations could materialize later or at a smaller scale than expected, prolonging weak utilization and negative earnings.
• EBITDA remains negative at minus 4.4 million euros, even after restructuring and cost cuts, and management guides to a cautious outlook with similar financial performance into 2026, indicating that persistent operating losses and cash burn could pressure the balance sheet and dilute future earnings if additional funding is required.
• The strategic exit from South Korea, a project termination with a U.S. customer and decommissioning of early generation stations highlight execution and project risk in a still nascent market, and further contract disputes or technology transitions could result in write downs and one off charges that weigh on net margins and overall earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Cavendish Hydrogen is NOK9.51, which represents up to two standard deviations below the consensus price target of NOK15.22. This valuation is based on what can be assumed as the expectations of Cavendish Hydrogen's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK20.94, and the most bearish reporting a price target of just NOK9.51.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be €37.4 million, earnings will come to €2.0 million, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of NOK7.96, the analyst price target of NOK9.51 is 16.3% 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.