Plug Power Inc

Plug Power Inc (NASDAQ: PLUG) is a New York, United States-based Electrical equipment manufacturing Company, which is a provider of comprehensive hydrogen fuel cell (HFC) turnkey solutions.

On 25 February 2021, the Company will announce the 2020 fourth quarter and year-end results.

Rationale for Valuation – Expensive at USD 48.60

• Covid-19 pandemic continued to disrupt the supply chain and can defer the revenue generation.
• Over the past four years, the Company’s operating and net margins are in the negative zone.
• The Company is trading near a 52-week high, and EV/Sales and EV/EBITDA multiples are currently overvalued compared to the Renewable Energy industry's corresponding multiples.
• From the technical standpoint, shares were trading below the short-term support level of 20-day (USD 62.79) simple moving average prices, which reflects a downtrend in the stock and can decline further.

Key Risks

• The unavailability of substantial cash reserves after operating losses can create liquidity risk.
• The volatility of commodity prices is likely to impact the earnings and cash flow from operations.
• Also, there is risk associated with climate change, legislative, fiscal and regulatory developments, economic and financial market conditions, risks associated with the impact of pandemics, and unfavourable foreign exchange and interest rates movement.

Recent News

On 22 February 2021, the Company had appointed Kimberly Harriman to the Group’s Board of Directors, and the newest member of Plug Power’s audit committee.

On 16 February 2021, the Company had signed a memorandum of understanding with ACCIONA S.A., which is for a 50-50 joint-venture (JV) for the green hydrogen platform serving clients in Spain and Portugal.

On 11 February 2021, the Company has appointed Preeti Pande, as a new Chief Marketing Officer.

Q3 Trading Update (for the three months ended 30 September 2020)

(Source: Company Website)

• The Company achieved a record third quarter with gross billings of USD 125.6 million. This gross billing was more than 10% higher than the previous guidance and reflected a growth of 73.4% quarter-on-quarter and 106% year-over-year.
• It has shown a strong performance in the quarter, with raising 2020 gross billings guidance from USD 310 million to USD 325-330 million.
• In Q3 FY20, the Company deployed another record 4,100 fuel cell system and 13 hydrogen fuelling stations, reflecting a growth of 130% year-over-year for fuel cell units deployed.
• On 30 September 2020, the cash and cash equivalents increased to USD 448 million as compared with the previous year (31 December 2019: USD 139 million).

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has exceeded the 2020 gross billings target and is raising 2021 estimates to USD 475 million. Further, in 2024, it is increasing the gross billings target by over 40% to USD 1.7 billion. Meanwhile, the Company saw an improvement in the Q3 FY20, driven by growth in sales, the increasing leverage on operating costs and ongoing cost reductions. However, PLUG has reported an operating loss.  Moreover, Covid-19 pandemic continued to create operational challenges. Notwithstanding, the urgency of climate change can drive the global demand for clean and flexible sources of energy in the future. In the future, the Company may face emerging headwinds and cost pressures. The Group is presently trading near the 52-week high, raising doubts at the upside potential at the current price level. The stock made a 52-week low and high of USD 2.53 and USD 75.49, respectively.

Based on the factors as highlighted above, we believe the stock of Plug Power Inc is “Expensive” at the closing price of USD 48.60 (as on 22 February 2021), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of US market and improved investors sentiments.

Quantumscape Corp

QuantumScape Corporation (NYSE: QS) is the leading maker of next-generation lithium-metal batteries for use in electric vehicles (EVs).

Rationale for Valuation – Avoid at USD 64.76

• The Company has not reported its revenue, which raises uncertainty regarding its earning potential.
• The Company’s profitability margins and Return on equity remained in the negative zone from the last three quarters.
• The Company’s EV/EBITDA and Price/Earnings multiples are in the negative zone.
• From the technical standpoint, 14-day RSI stood at ~69.18, which means the stock price could decline in the short term.

Key Risks

• The Company has a risk of delivering results as anticipated after its merger.
• The risk of lockdowns and restrictions may persist for an uncertain duration of time impacting the earnings of the Company.
• It is also exposed to risk regarding financial, political and legal conditions.

Q4 FY20 and FY20 Update (as on 16 February 2021)

• The Company has not reported its revenue in the current period, which raises uncertainty regarding its earning potential.
• The Company was a loss-making company and increased its loss from the previous year.
• On 31 December 2020, the cash and cash equivalent were USD 113 million, an increase from the previous year.

Six Months Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

In 2021, the Company is planning to spend between USD 230-290 million in combined opex and capex and around USD 60 million on a net cash basis. This would allow QS to enter 2022 with a liquidity position of more than USD 900 million. The Company had not reported any revenue for FY20 yet. The Company had completed the merger with Kensington Capital Acquisition Corp in November 2020 and now operating as a combined entity. The Company had released performance data of its solid-state battery technology addressing certain issues, including density, cycle life and the operating temperature. However, there are several risks associated with solid-state batteries that make them unacceptable for real-world field electric vehicles. Further, the prolonged impact of the COVID-19 outbreak continued to affect its financial results, plans, operations, outlook, goals, reputation, liquidity and stock price. The stock made a 52-week low and high of USD 9.74 and USD 132.73, respectively.

Based on the various risk factors discussed above, we have given an "Avoid" stance on QuantumScape Corporation at the closing market price of USD 64.76 (as on 22 February 2021), while we will revisit our stance when its solid-state battery technology become acceptable in the market.

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