Hazer Group Limited

HZR Details

Progress on Hazer “CDP” in Q1FY21: Hazer Group Limited (ASX: HZR) is engaged in the research and development of innovative hydrogen and graphite production technology. It has developed the IP rights to the ‘Hazer Process’- enabling hydrogen gas production with low CO2 emissions and the coproduction of high-grade graphite. It is currently undertaking a Hazer Commercial Development project (“CDP”). As of 24 May 2021, the market capitalisation of HZR stood at ~$151.87 million. During Q1FY21, HZR progressed on the engineering, procurement and permitting activities related to the project. It started equipment mobilisation, site clearing, and civil earthworks and planned to complete it in early May 2021. The company has received its first hydrogen fuel cell (equipment) package from the vendor.

In Q1FY21, HZR worked on an engineering program with Chiyoda to develop a revised engineering study of a larger capacity (2K–5K tonnes per annum) plant.

HZR incurred net cash outgoings of $2.1 million during Q1FY21. It holds $25.4 million as of 31 March 2021. Post-quarter, HZR received additional funds via AP Ventures Fund II GP LLP (AP Ventures). HZR issued unquoted 4 million, $1 unsecured convertible notes worth $4 million and 2.25 million options to AP Ventures.

Q1FY21 Highlights (Source: Company Reports)

Key Risks: The company bears early-stage exploration risks and an increase in scheduled costs and time on the project. It faces the threat of labour shortage and delays in the supply of materials and equipment due to the pandemic environment.

Outlook: HZR plans to safely store the hydrogen equipment received from the vendor ahead of the installation scheduled for 2HFY21. During Q1FY21, HZR revised the estimated cost of Hazer Commercial Development Project to be to be 5–10% above its initial capital cost estimate of $17 million. The company expects the project to be completed in November / December 2021. HZR will use the updated engineering program to discuss with parties interested in Japan and Asia, Europe, and North America. It hopes to commence this study in Q2FY21. HZR aims to complete the construction of the CDP and mature at least one potential project opportunity to a feasibility study stage through 2HFY21 simultaneously.

Stock Recommendation: The stock of HZR gave a positive return of 68.50% in the past six months and a positive return of 177.92% in the past nine months. The stock is currently trading slightly lower than the 52-weeks’ average price level of $0.330-$1.885. The stock of HZR has a support level of ~$0.985 and a resistance level of ~$1.15. On a TTM basis, the stock of HZR is trading at a price to book value multiple of 7.5x higher than the industry (Basic Materials) median of 2.8x. Considering the current trading levels, decent returns in the past six months and nine months, low debt to equity ratio, decent cash position, and Q1FY21 results reporting Hazer project development, valuation on a TTM basis, we believe most of the company’s positives have been factored in at the current trading juncture. Hence, we suggest investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $1.070, up by 2.392% on 24 May 2021.

HZR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Pure Hydrogen Corporation Limited

PH2 Details

Entered MOU for Hydrogen Refuelling: Pure Hydrogen Corporation Limited (ASX: PH2) is involved in the hydrogen and gas business operating three gas projects- Venus CSG in the Surat Basin in Queensland, Windorah project in the Cooper Basin, Serowe project CSG in Botswana, and seven hydrogen projects under development. As of PH2 May 2021, the market capitalisation of PH2 stood at ~$65.91 million. On 20 May 2021, PH2 announced implementation of a Memorandum of Understanding (MOU) with H2H Energy Pty Limited (‘H2H Energy’). As per the MOU, H2H Energy will deliver and maintain hydrogen refuelling outlets on specific proposed sites of PH2 in Australia, New Zealand, and other locations.

Water Supply Contract for Project Jupiter: On 12 May 2021, the company announced the enactment of a water supply agreement with the Gladstone Area Water Board to supply water for the hydrogen plant at the Jupiter project in Gladstone, Queensland. The deal is subject to customary project approvals, construction of a connecting water pipeline to the site and final investment decision (FID) of the project.

Trading Halt and Raise of $9.4 million: On 18 March 2021, PH2 notified that its securities had been placed under a trading halt due to a pending announcement regarding a capital raise. Its’ shares will be under rest till the start of normal trading on 22 March 2021 or when the news update is released to the market, whichever is earlier. On 22 March 2021, PH2 announced the $9.4 million capital raise via a share placement to institutional investors. It issued 32.43 million shares/CDIs at $0.29 per share/CDI.

Key Takeaways of March Quarter (Q3FY21): During Q3FY21, PH2 announced the completion of the merger between Strata- X Energy Limited (ASX: SXA) and Real Energy Corporation Limited (ASX: RLE) on 17 March 2021. It informed investors of its well-funded position, multiple gas projects and more than 5,000 shareholders. During the quarter, the exploration activities were focused on the Venus project in the Surat Basin and the Windorah gas project in the Cooper Basin.

In Q3FY21, PH2 partnered with and executed MOUs & term sheets with Hyzon Motors, Liberty Hydrogen, Port Anthony, and Wildfire Energy. As per MOU with Wildfire Energy, PH2 will provide hydrogen to potential customers in Brisbane and nearby areas. PH2 incurred net cash outgoings of $683,000 for the Venus and Windorah gas projects.

During Q3FY21, PH2 raised $9.6 million via a placement at 29 cents and exercising options. PH2 held a cash balance of $11.255 million as of 31 March 2021 and well-funded to implement the current works program.

Cash Flow from Operating Activities, Q3FY21 (Source: Company Reports)

Key Risks: The company faces the risk of operating projects within the COVID-19 protocols. It bears the mining-related risks of discovering methane gas and hydrogen from operations, ensuring adequate water and power requirements for running the plant, seeking the licence, and timely approvals for achieving project milestones.  

Outlook: PH2 will conduct pilot testing of well Venus-1 for production over the next three months. It expects multiple short-term value catalysts from the gas and hydrogen business units. PH2 is working on developing various opportunities with Hyzon Motors for potential customers. Under the different MOUs signed with the companies mentioned above, PH2 creates more opportunities with partners to supply hydrogen to potential customers.

Stock Recommendation: The stock of PH2 gave a positive return of 146.91% in the past six months and a positive return of 233.33% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level of $0.050-$0.440. The stock of PH2 has a support level of ~$0.178 and a resistance level of ~$0.227. Considering the low trading levels, MOUs signed with various companies for the supply of hydrogen, progress on exploration work on Venus and Windorah projects, decent cash position, and risks associated with ensuring electricity supply on planned project site (Jupiter), gas and hydrogen exploration-related risks, prevailing uncertainty due to COVID-19, and grant of timely approvals, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.200, down by 4.762% on 24 May 2021.

PH2 Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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