Summary
The SK deal adds a lot of value to Bloom. The revenue from this deal alone makes Bloom’s 2025 target easily achievable.
Bloom is still a cheap fuel cell stock. The company is on a secular growth path.
The investment by SK gives Bloom the necessary cash to become cash-flow positive.
This idea was discussed in more depth with members of my private investing community, Green Growth Stocks. Learn More »
onurdongel/iStock via Getty Images Thesis
Bloom Energy (NYSE: BE ) just secured a huge deal with SK ecoplant . It puts Bloom at the forefront of the emerging green hydrogen economy. There are many reasons to like Bloom. It has superior margins, approaches positive cash flow, and grows fast. I previously wrote that a partnership could be a catalyst for the share price, consider this an update. Bloom talked about a possible European partnership as well. SK Deal
This partnership is huge for Bloom Energy. The deal includes $4.5B in orders over 3 years. SK ecoplant also pledged at least a $255M immediate investment in Bloom. There is a possible ~$250M extra investment between now and November 30, 2023. The extra investment would happen at a 15% premium to the prevailing stock price at that time. The investment comes at a good time for Bloom as it still had to bridge a couple of quarters of slightly negative cash flows. This gives Bloom additional firing power for investing in its hydrogen platform.
The companies will create hydrogen innovation centers in the US and South Korea. They want to accelerate the market expansion for Bloom’s hydrogen solutions.
SK ecoplant is a subsidiary of SK Group . It’s a South Korean conglomerate active in a broad range of sectors from chemicals to telecom. SK ecoplant is Bloom’s biggest customer today. It accounted for ~34% or ~$270M of revenue in 2020. The current commitment is fivefold of 2020 revenue.
The company is also known for its partnership with Plug Power (NASDAQ: PLUG ). This happened through another subsidiary, SK E&S. The companies have a joint venture for producing fuel cells and electrolyzers in Asia. Plug and Bloom compete on electrolyzers with different technologies. The fuel cells from Plug and Bloom are in different areas of expertise. Plug is focused on warehousing and transportation solutions. Bloom provides stationary power systems that run on natural gas, biogas, or hydrogen.
It seems SK was more prudent with the Bloom deal than with Plug. The deal with Plug happened at a sky-high valuation which is why I still don’t see it as the best hydrogen stock . Bloom’s Hydrogen Solutions
Bloom’s energy servers currently run on natural gas or biogas. It always had a strategy towards hydrogen solutions but at an economically sensible pace. The company’s energy servers and electrolyzers are based on SOFC (solid oxide fuel cells) technology. Electrolyzers can transform electricity into hydrogen and energy servers convert it back into electricity.
The high operating temperature of SOFC technology makes it compatible with nuclear energy. Bloom researches the possibilities together with Idaho National Laboratory. As shown in the graphic, this means Bloom can offer both hydrogen and natural gas solutions for its applications. The natural gas or biogas-powered energy servers can be modified with carbon capture technology to become zero/negative carbon emissions. Strong Growth Expectations
Bloom targeted a 25%-30% CAGR for its revenue from 2020 through 2025. This deal already accomplishes this outlook. Revenue without SK should come in around $630M in 2021. If I assume stable revenues from other customers and an increasing SK revenue over three years this leads to $2.35B revenue in 2024. This is ~31% annual revenue growth from 2020.
I assumed no growth from other customers which is unlikely as Bloom introduces its electrolyzers. Bloom also works on a marine ship powering solution together with Samsung Heavy Industries.
Considering all these aspects, I expect a heightened outlook from Bloom for 2025. The deal could even have a positive effect on net margins as R&D and SG&A costs should take a smaller portion of Bloom’s revenue. Bloom targets a 30% gross margin and a 15% operating margin in 2025. Bloom Valuation
Bloom’s market cap is at $4.85B after the strong share price increase. The SK investment is in preferred shares but convertible to ordinary shares so it will dilute existing shareholders slightly. Based on the current market capitalization and 2021 outlook the company trades at a ~5 PS ratio. It’s still cheap for a company with a strong growth outlook in the short and long […]
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