Delayed Decarbonization Orders And Early Electrolyzer Setbacks Will Limit Prospects

Key Takeaways

• Ongoing delays in renewables adoption and project cancellations are causing unpredictable revenue, weak order intake, and ongoing losses.
  
• Rising competition and uncertain hydrogen infrastructure development threaten Nel's market share, long-term growth, and path to profitability.
  
• Technology upgrades, cost reductions, and strong partnerships position Nel to benefit from global hydrogen demand growth and improve earnings stability amid expanding policy support.

Catalysts

A hydrogen company, provides solutions to produce, store, and distribute hydrogen from renewable energy in Norway and internationally.

• Nel faces a significant risk of slower-than-expected progress in global decarbonization and renewables adoption, as reflected by customers' delayed final investment decisions, contract cancellations, and the CEO stating that 2025 will not meet earlier expectations for order intake or activity; this is likely to result in persistent revenue shortfalls well below previous projections.
  
• Despite improvements in technology and cost base reductions, the company still reports deeply negative net income (minus NOK 131 million) and continues to rely on high cash reserves for survival; if tight capital markets and higher interest rates limit future funding, Nel will remain exposed to ongoing net margin pressure and an inability to self-fund growth.
  
• The company's revenue and order backlog have recently declined sharply due to project cancellations and slow market development, with order intake down more than 75 percent year-over-year; if these trends persist, Nel's earnings visibility will weaken and future growth will be highly unpredictable.
  
• Intensifying competition and rapid technological advancement by other electrolyzer manufacturers threaten to outpace Nel's ability to differentiate its offerings, raising the likelihood of further market share loss, margin compression, and pressure on future earnings, especially as Nel's next-gen products remain at the prototype or pilot stage.
  
• A slower-than-anticipated hydrogen infrastructure build-out globally, as well as the potential emergence and scaling of alternative clean energy sources, risks shrinking Nel's long-term addressable market and would significantly undermine both top-line growth and the runway to reach sustainable profitability.

Nel Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Nel compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Nel's revenue will grow by 14.7% annually over the next 3 years.
• The bearish analysts are not forecasting that Nel will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Nel's profit margin will increase from -128.6% to the average GB Electrical industry of 7.8% in 3 years.
• If Nel's profit margin were to converge on the industry average, you could expect earnings to reach NOK 112.9 million (and earnings per share of NOK 0.06) by about June 2029, up from -NOK 1.2 billion 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 21.0x on those 2029 earnings, up from -4.0x today. This future PE is lower than the current PE for the GB Electrical industry at 26.8x.
• 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 8.91%, as per the Simply Wall St company report.

Risks

• Accelerating advancements in Nel's electrolyzer technology, including a next-generation pressurized alkaline system and a new PEM stack developed with General Motors, are expected to deliver substantial reductions in both system CapEx and OpEx, which should improve gross margins and enable revenue growth as hydrogen adoption scales globally.
  
• Nel has a robust and high-quality order backlog of NOK 1.25 billion, and the company is involved in a growing pipeline of large-scale projects-many of which are approaching final investment decisions-providing increased visibility into future revenues and helping to reduce order and earnings volatility over time.
  
• Expansion of global clean hydrogen policies, including clarified and extended US tax credits (such as the 45V hydrogen production tax credit), offers a stable regulatory backdrop, expanded project economics, and significant government support-securing up to $3 per kilogram of hydrogen produced for qualifying projects, which will directly accelerate demand and underpin top-line growth for Nel.
  
• Ongoing cost reduction efforts, including streamlined operations, workforce reductions, and optimized production capacity, have significantly reduced Nel's cash burn rate and operating expenses, increasing the likelihood of a return to positive EBITDA and supporting the sustainability of net margins even during periods of slower order intake.
  
• Strategic partnerships with global EPC leaders like Samsung and Saipem, combined with Nel's shift toward standardized, modular, and scalable solutions, are positioning the company to capture a larger share of the rapidly expanding hydrogen infrastructure market, leading to recurring revenues and improved long-term earnings visibility.

Valuation

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

• The assumed bearish price target for Nel is NOK1.0, which represents up to two standard deviations below the consensus price target of NOK2.12. This valuation is based on what can be assumed as the expectations of Nel'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 NOK4.2, and the most bearish reporting a price target of just NOK1.0.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be NOK1.4 billion, earnings will come to NOK112.9 million, and it would be trading on a PE ratio of 21.0x, assuming you use a discount rate of 8.9%.
• Given the current share price of NOK2.65, the analyst price target of NOK1.0 is 165.0% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
• 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.