Hydrogenics Corporation (TO:HYG) has proven, commercially available electrolyser and fuel cell products, which are being deployed in multiple applications as the world transitions to a low-carbon, hydrogen-fuelled economy. A strong order book (US$103m at end June 2016) underpins consensus growth estimates.
Strong order book underpins consensus estimates
Total revenues rose by 25% year-on-year to US$9.2m in Q216, reflecting a rise in OnSite Generation shipments, partially offset by a decrease in the Power Systems segment resulting from the timing of deliveries on certain long-term projects. Higher overhead absorption relating to increased revenues plus product mix drove a 570bp increase in gross margin to 19.8%, a trend that management expects to continue. Adjusted EBITDA losses widened slightly (by $0.1m to $2.4m), reflecting additional sales personnel and higher R&D costs. Cash burn totalled $6.3m, higher than management’s c $4m average quarterly target run rate because of the timing of certain R&D expenses, leaving $11.6m net cash at end June 2016. $16.2m of orders were received during Q2, including c $13.5m from SinoHytec for fuel cell-based power systems used in buses and trucks, which was the first significant order from China. This gave a $102.9m order backlog at end June 2016, $28.9m of which is scheduled for delivery during the next 12 months, underpinning estimates.
Projects open doors to US$17bn total market
Hydrogenics continued to make progress on key projects, which open the door to markets that collectively total US$17bn. These are power-to-gas energy storage (with E.ON), extended range electric rail transport (with Alstom (PA:ALSO) Rail), hydrogen refuelling infrastructure in Europe and North America, and nuclear waste water treatment in Japan (with Kurion/Veolia). Management’s priority short term is to finalise plans for a 50MW continuous power generation plant in Korea (US$100m+ opportunity), pursuing the pipeline of qualified opportunities (a further US$140m+) and doubling capacity at the Ontario facility to meet anticipated demand.
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