If you want to invest in hydrogen, you need strong nerves. But see for yourself:

Source: www.aktienscreener.com

The chart (as of January 5, 2024) shows a hydrogen index, in which stocks such as Nel ASA, ITM Power, Ballard Power, Plug Power and Bloom Energy are subsumed in the portfolio. The significant decline in 2022 and the highly volatile development in the last year are clearly visible.

The problem with these hydrogen stocks is, of course, obvious. The companies are still in the process of building up operations and are partly highly deficit. This makes stocks like Nel ASA or Plug Power vulnerable to enormous price fluctuations – especially in times of macroeconomic challenges, such as increased credit and investment costs.

Air Liquide: More security for your hydrogen investments In view of the turbulent roller coaster ride, many investors are currently shying away from engagements in the hydrogen sector. But there are also alternatives that can reduce your personal investment risk and at the same time profit from the hydrogen story. An example is the French gas company Air Liquide.

The company produces special gases such as oxygen, nitrogen, argon, carbon dioxide and, last but not least, hydrogen. Customers include the chemical, automotive, electronics and medical industries, among others. In addition, Air Liquide operates an extensive pipeline network to transport the gases from A to B. This gives the French a outstanding foundation to benefit from the politically driven hydrogen turnaround.

DZ Bank emphasizes future potential A few days ago, the renowned DZ Bank published a new study on the Air Liquide share, which you as an investor should definitely know. „In particular, the competence in the field of hydrogen technology is likely to play into Air Liquide’s hands in the medium term,“ the analysis states. With its Global Markets & Technology division, the group belongs to the leading players in this segment. For example, Air Liquide offers turnkey hydrogen filling stations, electrolyzers, and solutions for the transport and storage of hydrogen, the DZ Bank experts emphasize.

Especially in Germany, the company can count on „justifiable hope of lucrative major orders“ in view of the hydrogen offensive being pushed by Federal Minister of Economics Robert Habeck. Specifically, around 20 billion euros are to be invested in the expansion and construction of a hydrogen network in Germany, which is expected to cover all federal states by 2032.

In any case, Air Liquide already operates a hydrogen network in the Rhine/Rhur region with a total length of 240 kilometers. At the same time, the company is expanding its production capacities through electrolyzers, for example in cooperation with Siemens Energy. Therefore, according to the DZ Bank’s forecast, the French will play an important role in Germany’s hydrogen turnaround.

Air Liquide also a pioneer in CO2 separation Another point that the experts point out is Carbon Capture Use and Storage (CCUS). This involves capturing the CO2 generated in industrial processes (capture) before the greenhouse gas can enter the atmosphere. It can then be stored underground (storage) or used as a raw material in the chemical industry (use), for example.

According to the DZ Bank, Air Liquide is also a pioneer in this area. In addition to a CCUS plant for the French building materials manufacturer EQIOM at the Lumbres site, the group is also implementing a capturing plant for the cement manufacturer Holcim in Belgium. Added to this are corresponding commitments, for example in cooperation with the German chemical giant BASF.

In this context, the DZ Bank quotes the researchers from Brainy Insights, who assign an average annual growth rate of 16.5 percent to the market for carbon capturing until 2032. This gives Air Liquide strong opportunities.

Fundamentally on course: Expecting profit increases The experts also show optimism with regard to the fundamental data. Air Liquide had reported an organic sales increase of 1.5 percent to 6.81 billion euros for the third quarter of 2023. According to the DZ Bank, this represents solid figures despite the still gloomy economic outlook. In the following quarters, revenues in the industrial gases segment are expected to recover somewhat, especially in the Asia/Pacific region, according to the experts‘ forecast. The analysts also rate the efficiency improvement program positively, with which Air Liquide intends to contain the increased costs. And last but not least, the gas company can push through price increases due to its market power.

„For the current fiscal year, Air Liquide sees itself on course to achieve its annual targets, which include further margin improvements as well as sustainable increases in earnings per share,“ the DZ Bank states. The analysts expect an increasing earnings per share (EPS) for both 2024 and 2025. In addition, the share is „not too highly valued“ with a P/E ratio of 22.9 expected for 2025.

My conclusion for you In my opinion, large gas companies like Air Liquide have a significant advantage over specialized hydrogen companies such as Nel ASA or Plug Power: They are established and profitable big players that can compensate for weak phases in individual assets much better. This diversification gives the corresponding shares a greater stability, especially in times of crisis.

Sure: With higher security, usually lower return opportunities also go hand in hand in the hydrogen sector. Nevertheless, according to the analyst consensus, the share currently has room for growth. Deutsche Bank, for example, confirmed its price target for Air Liquide only last Friday, which means a potential price increase of +13.7 percent compared to the closing price on Friday.

In view of the energy transition, the title is interesting anyway, especially in the long term. With the backing of state actors, Air Liquide should be able to fully utilize its expertise in the gas sector to win billion-dollar orders for green hydrogen. You should definitely not underestimate this share.