Thyssenkrupp / hydrogen: solid industry seeking upward mobility

Businesses want to talk about the concept of pivoting into new areas. Very little success. This aspiration is worthwhile for Thyssenkrupp, one of Germany’s waning industrial giants. If their plan is successful, it will become an important equipment supplier to the growing hydrogen market. Its vehicle is Nucera, a joint venture, which it for listing purposes. Lex estimates a valuation of 2 billion euros.

Thyssenkrupp has had a rough couple of years. Slow reconstruct, was driven by pressure from activist investor Cevian, causing shareholders heavy losses. Despite the stock’s strong gain since 2020, it still currently has a wither market value of €6.8 billion. This number will increase if Nucera, of which Thyssenkrupp owns two-thirds, lists at a decent price.

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

Nucera hopes to capture a valuable piece of this market. Thyssenkrupp thinks it can win 90 of the 522 major projects announced, worth 13 billion euros. It had an orders backlog of €1.3 billion. The company was profitable. It made an operating profit of 27 million euros on 319 million euros in revenue last year. Thyssenkrupp sets an annual revenue target of up to 700 million euros by 2025.

Last year, when talk of a Nucera float went viral, some analysts encouraged a valuation of 5 billion euros. Lex is optimistic. Assume a forward business value for 25 times operating profit, similar to that of industrial gas specialists like Linde and Air Products. To reach 5 billion euros, one would need to use a delicious 29% return, triple last year’s profit or a higher multiple.

Lex thinks profit margins won’t soar anytime soon, so expect at best 2 billion euros. That would add around €1.3 billion to Thyssenkrupp’s valuation.

The more pivoting required a leap of faith—engineers were said to have rebranded as dotcoms in 1999—the less likely it was to succeed. However, Thyssenkrupp’s foray into hyped hydrogen has a much better basis.

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