Sat. Jan 22nd, 2022

Businesses like to talk about the idea of ​​moving to new areas. Poor pass. The pursuit is worthwhile for Thyssenkrupp, one of Germany’s diminished industrial giants. If its plans come true, it will become a key equipment supplier to the growing hydrogen market. His vehicle is Nucera, a joint venture, which it intends to list. Lex estimates a valuation of € 2 billion.

Thyssenkrupp has had a difficult few years. A slow restructuring, spurred on by pressure from activist investor Cevian, has forced huge losses on shareholders. Despite a decline in equities since 2020, it now has a withered market value of € 6.8 billion. It should rise as Nucera, of which Thyssenkrupp owns two-thirds, quotes at a decent price.

Much depends on how fast the hydrogen market grows, and to what eventual size. Nucera is no newcomer to the industry. It has long experience of making equipment that makes hydrogen for oil refineries and chemical companies. Global hydrogen demand, measured in terawatt hours, is estimated to increase sevenfold to 26,000 TWh by 2050.

Nucera expects to conquer a valuable part of this market. Thyssenkrupp believes he can win 90 of the 522 large projects announced, worth € 13 billion. It already has an order backlog of € 1.3 billion. The company is already profitable. It earned operating profit of € 27 million on € 319 million in revenue last year. Thyssenkrupp aims for up to € 700 million in annual sales by 2025.

Last year, while there was talk of a Nucera lock circulating, some analysts suggested a valuation of € 5 billion. Lex thinks this is optimistic. Assume a forward enterprise value to operating profit multiple of 25 times, similar to that of industrial gas specialists such as Linde and Air Products. To reach € 5 billion, one would have to use a juicy margin of 29 percent, triple last year’s margin, or a higher multiple.

Lex thinks margins will not rise much soon, so expect a maximum of € 2 billion. This will add about € 1.3 billion to the valuation of Thyssenkrupp.

The more a pivot requires a leap of faith – one thinks of engineers who re-traded as dotcom companies in 1999 – the less likely it is to succeed. Still, Thyssenkrupp’s trip to charged hydrogen is much better grounded.

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