Hydrogen ready

2G Energy 22 September 2020 Update
Download PDF German PDF Download

2G Energy

Hydrogen ready


Scale research report - Update

22 September 2020



Market cap


Share price graph

Share details




Deutsche Börse Scale

Shares in issue


Last reported net debt at end June 2020


Business description

2G Energy is a leading international manufacturer of highly efficient combined heat and power plants (CHP). These are deployed in the housing industry, agriculture, commercial and industrial companies, public energy utilities, and municipal and local government authorities.


Increasing demand for flexible and decentralised generation of power and heat worldwide as coal and nuclear power stations are closed down.

Decentralised CHP solutions reduce CO2 emissions by improving conversion efficiency.

Hydrogen-fuelled systems offer mechanism for storing surplus power from renewables.


Uptake affected by green regulation.

Economics depends on spark gap.

Low free float (47.7% at end June 2020).


Anne Margaret Crow

+44 (0)20 3077 5700

2G Energy’s product portfolio of CHP systems positions it to benefit from the transition from coal and nuclear-powered electricity generation to increasing use of wind and solar sources augmented by natural gas to balance supply and demand. In the longer term, 2G has proven technology to address the potential switch from natural gas to hydrogen. However, there still will be significant demand for 2G’s bio-gas and natural gas powered systems if adoption of hydrogen as an energy storage medium is delayed or derailed.

Pandemic delays plant commissioning

The coronavirus pandemic has had minimal impact so far on 2G’s ability to manufacture CHP systems and demand appears unaffected. However, the pandemic has prevented 2G from completing the installation and commissioning of some systems as planned, resulting in a €10.2m y-o-y reduction in group sales during H120 to €85.6m. EBIT reduced by €0.5m to €2.3m, primarily as a result of not being able to recognise revenues until units are commissioned. The group moved from €0.1m net cash at end FY19 to €4.1m net debt at end H120. The major factor behind this shift was the increase in work-in-progress and completed goods related to the inability to install and commission some systems by the end of H120.

Management reiterates February guidance

Noting that new order intake has remained robust despite the pandemic, rising by 16% y-o-y during the seven months ended July 2020 to €94.9m, management has reiterated its FY20 guidance given in February. This is for revenues of €235–250m with an EBIT margin of 5.5–7.0%.

Valuation: Low-risk play on hydrogen economy

2G’s share price is now almost 50% higher than at the start of the year. At the current level 2G’s shares are trading on prospective EV/EBITDA and P/E multiples that are at a premium to our sample of conventional power generator manufacturers. Consensus estimates show 2G Energy’s revenues growing substantially more quickly than the sample average, justifying multiples that are at a premium to the sample mean, in our view. We note that 2G Energy provides a route for participating in the potential development of a global hydrogen economy but without the technology and execution risk of fuel cell or electrolyser stocks.

Consensus estimates







































Source: Refinitiv

H120 performance

Pandemic impairs ability to commission and install plants

Group sales fell by €10.2m y-o-y during H120 to €85.6m. Travel restrictions caused by the coronavirus pandemic prevented personnel from accessing customer sites to support the commissioning and installation of new CHP plants and in some cases installation and commissioning was delayed because the pandemic had prevented customers from obtaining the equipment from third parties required to complete a project. 2G does not recognise revenues until a customer has formally accepted a system following commissioning, so delays to installations have meant that 2G was not able to raise invoices for systems that had been built during H120 but not commissioned. The H120 sales result obscures the fact that the production in Heek experienced very little disruption from the pandemic and there were no order cancellations. This is demonstrated by the total operating revenue figure, which includes work-in-progress and finished goods, and rose by €8.0m to €115.5m in H120, in line with management’s expectations. While there were some minor supply issues relating to components sourced within Europe, the high levels of engine inventory meant that assembly schedules were not affected. Service revenues grew by €3.1m to €45.7m, accounting for 53% (H119: 44%) of total revenues given the decrease in product sales. Exports were more severely affected by the pandemic, reducing to 36% of total sales (H119: 38%).

Cost of materials as a proportion of total operating revenue was similar to the prior year period at 69.5%. Personnel costs increased as a proportion of operating revenue (by 1.1pp to 19.0%) partly because of additional service and sales people, partly because of wage inflation since unemployment rates in the Heek area are very low and partly because of the measures to protect against transmission of the COVID-19 virus, which led to reductions in efficiency. EBIT reduced by €0.5m to €2.3m, primarily as a result of the delayed revenues. EBIT margins (as a percentage of net sales) reduced very slightly, by 0.3pp to 2.7%.

Cash absorbed by making systems that were not installed

The group moved from €0.1m net cash at end FY19 to €4.1m net debt at end H120. The major factor behind this shift was a €22.9m increase in work-in-progress and completed goods, part of which is linked to higher order intake, part to the inability to install and commission some systems. This rise in working capital was offset to a large extent by higher levels of pre-payments, which include advance payments for new plants and full maintenance contracts. 2G typically receives a 30% advance payment on CHP systems of 30% on receipt of the order, a 60% payment on factory acceptance and 10% once the CHP system has been commissioned. Capex totalled €1.5m (gross), around half of which was spent on purchasing new vehicles.

Favourable outlook supported by order book

Management reiterates FY20 guidance

New order intake grew by 16% y-o-y during the seven months ended July 2020 to €94.9m. This growth was driven primarily by a 37% jump in orders in Germany. Demand for natural gas-powered systems benefited from the Bundestag agreeing two significant amendments to the German Renewable Energy Sources Act and the German Co-generation Act in June 2019. These amendments provided clarity on the how the mandatory levy on energy produced by new CHP plants installed since August 2014 and consumed in-house, rather than exported to the grid, would be structured. Lack of clarity prior to June 2019 had depressed demand, adversely affecting H119 orders. While relatively few new biogas plants have been installed in Germany for several years because of an unfavourable subsidy regime, customers are replacing older systems with ones able to provide more flexible output. The existing subsidies supporting this replacement programme have been extended from the end of November 2020 to the end of July 2021. This supports demand for longer, though it is likely to fall once the subsidies end. The order book at end July 2020 totalled c €159.5m compared with €149.6m a year previously.

Based on the order book position and the current general business trend in Germany and elsewhere, as of early September management was confident that the group would increase sales and earnings during the second half, enabling it to meet the FY20 guidance given at the end of February. This is for €235–250m net sales generating 5.5–7.0% EBIT margin. This view assumes that the pandemic does not worsen again in the markets where 2G operates, which could lead to temporary closures of construction sites in key foreign markets. 2G is currently completing the outstanding installations, which typically require only two or three days on site, and raising the associated invoices. Management expects that the extensive employee protective measures it has implemented and the additional cost incurred in purchasing hard-to-get parts will continue to adversely affect efficiency, offsetting the leverage benefit from higher revenues.

With regards to the impact of the coronavirus on demand, management notes that typically less than 5% of sales are from the leisure/hospitality sector, which is the sector most affected by the pandemic. Since the company’s technology provides a cost-effective way of providing heat and hot water as well as generating electricity, cost-cutting measures being implemented in response to the pandemic are in effect resulting in increased demand for CHP in some industrial markets.

Long-term investment case intact

Management expects the likely reduction in domestic sales of biogas systems from H221 onwards (which was already noted above) will be more than offset by demand for natural gas systems in Germany to complement renewable generation sources. It expects that this deployment of natural gas power generation systems as a substitute for coal-based power generation will then be followed by gradual adoption of hydrogen-fuelled systems as part of the move to a completely carbon neutral power generation industry.

Transitioning from coal and nuclear generation to natural gas

In July 2020 Germany’s lower house of parliament passed a bill to phase out coal-fired power stations in the country by 2038 at the latest. The bill means that more than 40GW of electricity capacity will gradually be withdrawn from the market, in addition to more than 9GW of capacity loss because of the phasing out of nuclear power by the end of 2022. In total, this represents around 40% of the available base load capacity being withdrawn. Gas-based CHP plants such as those offered by 2G Energy represent a solution for bridging the immediate generation capacity shortfall. This is because 2G Energy’s systems have a flexible output; they can be installed close to the point of consumption, reducing investment in transmission and distribution grids; and their planning and construction time is substantially less than that for wind farms or utility-scale, gas-powered generation facilities. Having a flexible output is particularly helpful as the proportion of energy generated from renewable sources increases since wind and solar generation sources are inherently intermittent. As part of the coal phase out, the subsidies for larger CHP systems have been enhanced with the funding period expanded to the end of 2029 and the annual cap raised from €1.5bn to €1.8bn.

The proposed decarbonisation of fossil fuels in industrial processes and transportation will also result in increased demand for electricity. For example, the German government announced its €9bn hydrogen strategy in June 2020. This proposed converting domestic steel production, refining and ammonia production to hydrogen, resulting in an additional 150,000GWh of electricity annually, ie an increase of around one quarter.

Transitioning from natural gas to hydrogen

Governments are increasingly introducing policies intended to encourage the use of hydrogen so they can meet their obligations to achieve carbon neutrality. For example, in July 2020 the EU published ‘A hydrogen strategy for a climate-neutral Europe.’ This document sees hydrogen playing a key role in achieving decarbonisation of EU energy consumption by 2050. The roadmap envisages progressive uptake of hydrogen leading to a repurposing of parts of the existing natural gas infrastructure to transport hydrogen. The hydrogen gas will primarily be used to replace fossil fuels in some carbon-intensive industrial processes and to power fuel-cell trucks, buses and other heavy vehicles. There is also a role for hydrogen as an energy storage medium to address the imbalance between supply from renewable energy sources and demand. Hydrogen presents an alternative to utility-scale battery energy storage systems, using surplus electricity from renewable sources to generate hydrogen by electrolysing water. In September 2018, 2G Energy received its first order for a CHP system powered by hydrogen for a project realised together with the public utility of Haßfurt. This site is fully operational. In March 2020 APEX Energy Teterow in Rostock-Laage commissioned 2G to supply a hydrogen cogeneration plant. 2G’s systems are particularly appropriate in this context because CHP systems by definition use the heat produced during electricity generation, for example, to heat water in a hospital or care home, thus improving the overall efficiency of the process. Moreover, the design of 2G’s systems means that it is possible to carry out the conversion from running on natural gas to hydrogen at a customer’s site.


A comparison of prospective peer multiples for companies manufacturing fuel cells or electrolyser equipment for generating renewable energy yields limited information because few of the companies have reached commercial revenues and even fewer are generating meaningful profits. 2G Energy is trading on multiples that are lower than our sample mean, which is to be expected given that it has been generating substantial revenues and profits for several years. It is interesting to note that all of these stocks have increased in value since the start of the year, despite the coronavirus related sell-off in March, as have 2G Energy’s shares. We note that 2G Energy provides a route for participating in the potential growth in the global hydrogen economy but without the technology and execution risk of the stocks in this sample, in our view. Moreover, there still will be significant demand for 2G’s bio-gas and natural gas powered systems if the transition to a hydrogen economy is delayed or derailed.

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Exhibit 1: Peer multiples comparison



performance (%)


cap (€m) 

EV/sales 1FY (x)

EV/sales 2FY (x)



1FY (x)

2FY (x)

Revenue CAGR* 

Ballard Power Systems










Ceres Power Holdings










Fuelcell Energy










ITM Power










Plug Power










SFC Energy










Hydrogen power generation equipment mean








China Yuchai International






























Generac Holdings










Conventional generation equipment mean








2G Energy










Source: Refinitiv. Note: Grey shading indicates exclusion from mean. *Year 3 to year 0. Prices at 19 September 2020.

At the current level, a comparison with companies manufacturing conventional power generation equipment shows 2G Energy trading at a discount to the sample mean for prospective EV/sales multiples, but at a premium to the sample mean for prospective EV/EBITDA and P/E multiples. Consensus estimates show 2G Energy’s revenues growing substantially more quickly than the sample average, potentially justifying multiples that are at a premium to the sample mean.


General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).


Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt


London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt


London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues