Chart Industries is a small cap natural gas and hydrogen game


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The energy transition is underway, but for most companies, tangible results will not appear for years. AT

Industries chart,

the action is unfolding now, and the actions of the company do not yet fully reflect it.

Chart (ticker: GTLS) makes cryogenic tanks and other equipment to freeze gases and make them easier to isolate and transport. Its products work behind the scenes in a variety of industries, keeping soda sparkling and providing oxygen to patients suffering from Covid-19. For now, Chart makes most of its money supplying equipment to industrial gas companies or the fossil fuel markets. But its stock offers a way to play both the rebound of traditional energy and the transition to new forms of it.

“In the case of Big Oil, the energy transition will take 30 years,” said Pavel Molchanov, analyst at Raymond James. “For Chart, this happens in real time. He has an outperformance rating on stocks and a price target of $ 165, or 18% above the recent price of $ 140.

Chart is based in the small town of Ball Ground, Georgia, but operates around the world. Its results have fluctuated with the fortunes of the natural gas and chemical industries in recent years. Chart mostly persevered during the pandemic, increasing profits to $ 2.73 per share from $ 2.52 the year before, down slightly in sales to $ 1.2 billion. The company, however, has a record backlog and is entering a period of much faster growth, which more than justifies its valuation of around 26 times the expected earnings for next year.

E = estimate

Source: Bloomberg

Chart specializes in taking volatile gases and processing them so that they can be contained and transported. This can mean pumping them through heat exchangers, freezing and storing them in cryogenic tanks, and transporting them through insulated pipes. These technologies are used to transform natural gas into liquid form for transport through pipelines or abroad.

The company benefited from the shale drilling revolution, and new laws helped the United States become a major exporter of natural gas. But the technology that captures natural gas is also useful for capturing and taming other gases.

“We are independent of molecules,” said Jillian Evanko, CEO of Chart Barron.

Chart’s systems help pump nitrogen into pressurized containers to brew cold-brewed nitro coffee, carbon dioxide in greenhouses to accelerate the growth of cannabis plants, and ozone in systems. water to keep them clean. Its divisions in renewable energies, such as hydrogen and carbon capture, are even more promising. Its specialty products division is the main reason Chart is expected to increase earnings per share by 44% this year and 33% next year, with an expected long-term growth rate of 25%, according to FactSet. Specialty products now account for 20% of the company’s revenue, but analysts see them reaching almost half of sales by 2025.

Hydrogen, an alternative fuel that can generate electricity and power vehicles, is a great opportunity. Chart has been manufacturing equipment to process and transport hydrogen for decades, primarily for use in aerospace, but it is now becoming a key part of the supply chain for the use of hydrogen in alternative energy.

In addition to processing, storage and transportation equipment, Chart is helping build the hydrogen refueling stations themselves, which are quickly spreading across Europe and starting to appear in the United States. Its hydrogen orders grew from $ 4 million to $ 71 million in the first quarter of this year. in the first quarter of 2020, and it expects sales of hydrogen and helium to reach at least $ 99 million this year, up from $ 22 million in 2020. The company believes the potential market opportunity of hydrogen is worth $ 2.4 billion over the next three to five years.

This speech attracts investors passionate about hydrogen but wary of certain companies in the sector which have potential but no profits.

“If you play hydrogen through Chart, you are already making a profit from these sales because hydrogen is one of our most profitable parts as a business,” Evanko said.

Steven Klopukh, portfolio manager at Thornburg Investment Management, owns Chart in two funds he manages. “It’s a really good infrastructure game on the hydrogen economy,” he says. He sees a clear path for profits to reach $ 8 per share per year and for the stock to reach $ 180 thanks to the strength of his renewable energy products.

Klopukh also sees promise in carbon capture and storage, a process that takes carbon emitted from drilling sites or factories and processes it for reuse or underground storage.

Carbon capture is “the next big thing” in energy transition companies, predicts Evercore analyst James West. Among the companies that bet big on carbon capture, we find

Exxon Mobil

(XOM), who is already one of Chart’s customers.

Chart predicted its share of the carbon capture market to be worth $ 800 million over the next three to five years. “It’s a year behind hydrogen, as far as what we’re seeing in the market,” said CEO Evanko.

Government policies and investments could become another catalyst for Chart, especially in areas like carbon capture. The company would almost certainly benefit from the infrastructure proposal just approved by President Joe Biden. “We would still expect significant growth without the US infrastructure bill, as there are multiple macroeconomic tailwinds,” Evanko said. “But it would definitely be an accelerator.”

Write to Avi Salzman at [email protected]

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