Shares of Norway’s Nel Hydrogen
are expected to rise by more than 20% thanks to the latest set of green subsidies in both the U.S. and Europe, according to Morgan Stanley.
Nel, founded in 1927, produces hydrogen using renewable energy by splitting hydrogen from water through electrolysis.
The investment bank said green hydrogen would be a “key beneficiary” of cleantech stimulus plans on both sides of the Atlantic, with Nel shares “one of only a few ways to play the European Green Deal” for investors.
The push for green energy has gained fresh impetus after the U.S. unveiled its $369 billion subsidy program through the Inflation Reduction Act last year. In response, the European Union announced its Green Deal Industrial Plan earlier this year.
Morgan Stanley says Nel shares, which trade in the U.S.
and Europe
, will rise to 22 Norwegian Kroner ($2.15) over the next 12 months. Shares of the company have already increased by 35% this year.
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“We think clear, supportive regulation will boost confidence in the likelihood of the growth hydrogen opportunity materialising, impacting valuation on hydrogen names,” said analysts led by Arthur Sitbon in a note to clients on Feb. 7.
Apart from the sectoral tailwinds, Nel shares also benefit from being one of the few listed green hydrogen companies, said the analysts. That means a lack of choice will force investors to buy Nel to gain exposure to the sector.
The Wall Street bank said that competitors are either too small, private, or only a small part of large groups. Morgan Stanley is also bearish on ITM Power’s stock, which is one of the few viable alternatives, according to the bank.
“In this context, we expect NEL to trade on structurally higher multiples given its scarcity value,” the analysts added.
The positive outlook from analysts this year is in stark contrast to their views in 2022. Investment banks repeatedly cut their estimates last year after multiple earnings misses driven by weak order momentum and supply chain challenges.
However, Morgan Stanley believes sentiment has hit rock bottom, and shares of the company are likely to rise from the current level.
Nel also reported a solid start to the year by announcing potential deals involving two 60 MW electrolyzer plants with the German company HH2E.
According to Norwegian investment bank Arctic Securities, if the deal completes, Nel will have landed three 100 MW contracts in six months. In comparison, the entire electrolyzer market amounted to about 200 MW in 2020, according to Bloomberg New Energy Finance.
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