Byron Capital still bullish on Hydrogenics, but wary of valuation

Byron Capital analyst Dev Bhangui says he remains very bullish on Hydrogenics (Hydrogenics Stock Quote, Chart, News: TSX:HYG), but a 156% run up in the stock price in the past 150 days puts him in a “defensive mode.”

On Friday, Hydrogenics reported its fourth quarter and fiscal 2013 results. In the fourth quarter, the company lost $3.1-million on revenue of $11.00-million, up 12% from the same period last year. In 2013, the company lost $8.9-million on revenue of 42.4-million a topline that was up 34% over 2012.

CEO Daryl Wilson said the company was firing on all cylinders.

“Hydrogenics ended 2013 stronger than at any point in its history, he said. “We continue to see the same demand trends that have propelled the company forward as global interest in hydrogen-based power and energy solutions accelerates.We are encouraged with progress in our energy storage applications. Later this year, E.ON will open the most advanced power-to-gas facility in the world and the largest PEM electrolysis installation producing hydrogen. Given energy storage opportunities such as this, the growing demand for fuelling stations, new fuel-cell applications within the mobility and backup-power sectors, and the underlying strength of our industrial electrolysis business, Hydrogenics is on sound footing for 2014 to pass the $50-million revenue barrier and break into profitability.”

Bhangui says Hydrogenics, as a fuel cell pure play, is extremely well positioned to benefit from a broadening fuel cell space that includes bustling markets for data centres, power systems and even a recently resurrected buzz from the auto industry.

The Byron analyst thinks Hydrogenics will deliver positive earnings in fiscal 2014 and 2015 and that its revenue will rise to meet the Compound Annual Growth Rate of its immediate peers, which is in excess of 30%.

But a fuel cell sector that is on fire has lifted Hydrogenics to five-year highs and has Bhangui rejigging his price target and rating. In a research update to clients today, he raised his target to $25.00, up from his old one-year target of $15.50, but simultaneously downgraded the stock from BUY to HOLD. He says the new rating is based purely on valuation, and is derived from applying 2.5x to his expectations for fiscal 2015E EV/Sales.

Shares of Hydrogenics on the TSX closed today down 15.1% to $32.00.

More Cantech Cleantech