Morgan Stanley's recent report presented a cautious and detailed analysis of the clean hydrogen industry, focusing on the challenges and uncertainties that lie ahead. The report underscores the industry's increasing dependence on subsidies due to rising rates and renewable electricity prices, which could result in delays in project pipelines and slower adoption rates. The report also reflects on the underperformance of hydrogen OEMs in 2023 (down approximately 40%), largely attributed to higher interest rates and delayed adoption, setting a tone of uncertainty for the industry's outlook in 2024.
Morgan Stanley downgraded Nel (NEL.OL) to Equal Weight from Overweight with a new price target of NOK9/share. As a consequence, the company's shares dropped around 9% intra-day today, closing with nearly a 3% loss.
NEL's shares fell by over 45% in 2023, a decline attributed to the challenging higher rate environment and the delayed adoption of hydrogen.
The report predicts that NEL's fiscal 2023 revenues and EBITDA will likely meet consensus expectations, with no major positive surprises anticipated.
Analysts believe “that a lower rate environment could be a positive for NEL in 2024 given the long-duration nature of the group's cash flows and how the shares were impacted by higher rates in 2021-23." Although a reduction in interest rates could significantly benefit the shares in 2024, the prevailing uncertainty regarding future rate trends and challenging fundamental conditions suggest that the risk-reward profile is not attractive enough to remain Overweight on the shares, according to analysts.