T’Winners From The Deferred Energy Crisis

A coal power plant. Photo: Shutterstock

A coal power plant. Photo: Shutterstock

Almost nothing has been done world-wide about insufficient and dirty energy supply while new demand is constantly being added. This is the case for virtually all forms of energy including electricity and natural gas. Hydrogen is an important form of new energy and - together with natural gas - will solve much of today's energy supply shortage and pollution problems that has been caused by deferral of the problems by both the political and private sectors. The past few years have been a classic example of kicking the can down the road until much of the world is now the end of the road unless urgent investments are made. 

Fortunately an awful and unfortunate event - Putin's barbaric invasion of Ukraine - may prove to be the catalyst that makes authorities address the supply problem, at least in Europe.  Worldwide pollution also needs to be urgently addressed as it has made worse a long deferred existential crisis! 

I will write about two companies I am invested in that I believe will be T'Winners from this situation. I label them T'Winners - Two Winners - because they are twins in the sense they complement each other nicely and both will be winners and we can be responsible investors. Making money while cleaning up our polluted planet is a good motivator! 

They are Chart Industries (GTLS) on the NYSE and Burkhardt Compression, (BCHN.SW) on the Swiss Zürich exchange. 

I will expand on the global situation later but will first say more about those...

 

Chart Industries 

Image Source: Chart Industries


Three of those monster LNG storage containers were made in Chart's Ferox facility in the Czech Republic for AB Klaipedos Nafta in Lithuania where the port of Klaipeda has become a LNG hub for the Baltic countries and north-eastern Poland. That required foresight - it was before Putin's invasion of Ukraine and was an early part of the Baltic state's endeavour to reduce their dependence for natural gas from Russia. 

Chart is the US world leader in cryogenics and its technology is used in LNG plants - big and small around the world. Many of those are built by Bechtel whose use Chart's products. Chart is also becoming a leader with hydrogen. It is making almost everything needed to transport and store hydrogen.   For those who would like to know more about hydrogen I wrote comprehensively on it in  Our Future's Fuel - Hydrogen 

According to the IEA Hydrogen is expected to cover 12% of energy needs by the middle of the century and that will also be ok if made from natural gas to hasten the energy transition.

For a few years yet natural gas as is - albeit supplied to many user in the form of LNG - will remain a major part of Chart's business and I especially like a point they make on their website:

"Chart Industries is at the heart of the energy revolution. Abundant, clean burning and less costly than distillates on an energy equivalent basis, natural gas has become the global fuel of choice as a bridge to a non-carbon future that is still decades away.

The key cryogenic stages used in mid-stream natural gas processing include nitrogen rejection, the process of removing nitrogen to meet pipeline standards, NGL recovery, which separates the high value natural gas liquids, and helium recovery; all of which are reliant on Chart products and associated process technology.

Liquefied Natural Gas (LNG) is natural gas that has been refrigerated to approx. -260°F (-162°C) and condensed. In its liquid state natural gas occupies around 1/600th the volume of its gaseous state making LNG the cost efficient solution for storage and transportation over long distances and/or where no pipeline exists. For more than 40 years Chart has pioneered the development and use of LNG and we supply equipment and solutions across the complete LNG value chain - Liquefaction, Storage, Distribution, End-use".

In recent years Chart has been a leader of the trend into hydrogen use for many purposes and this presentation on the company website tells more about the scope of activity in both hydrogen and LNG.  

Sales growth has been fairly good but it is difficult to tell from the results how much of that is organic and how much from its many small acquisitions.

 

Income statement

In millions of USD

Fiscal data as of Dec 31 2022 2022 2021 2020 2019 2018
REVENUE AND GROSS PROFIT
Total revenue 1,612 1,318 1,177 1,216 1,084
OPERATING EXPENSES
Cost of revenue total 1,206 991 839 906 788
Selling, general and admin. expenses, total 201 181 159 188 167
Depreciation/amortization 41 39 46 40 22
Unusual expense(income) 36 6.00 27 21 4.40
Other operating expenses, total -- -- -- -- --
Total operating expense 1,498 1,229 1,080 1,164 992
Operating income 115 89 97 52 92
Other, net 1.90 (0.3) (2.2) -- --
INCOME TAXES, MINORITY INTEREST AND EXTRA ITEMS
Net income before taxes 99 74 85 35 69
Provision for income taxes 16 14 15 2.80 17
Net income after taxes 83 61 70 32 52
Minority interest (1) (1.8) (1.4) (0.4) (2)
Net income before extra. Items 82 59 69 31 50
Total extraordinary items (58) 0 239 15 38
Net income 24 59 308 46 88

Source for the figures: Financial Times 

In November last year they announced the large acquisition of Howden and the combined results will show for the first  time when Q1, 2023, results are released on April, 28. The markets did not like that acquisition news and the share price is down over 40% since then but insiders, including the CEO, were share buyers a few weeks ago in March so they presumably like what they will report. Both Chart and Howden have record order backlogs from the over 30 countries they operate in and that defies the constant forecasts by “experts” of a looming  recession.


To me as an outsider but long term CEO of world leading advanced technology manufacturing companies (now retired and consulting startups on business development) - thing, above all others, stands out. That is the low gross margin.

Chart is essentially a niche company and is a world leader in that niche. Such a niche also means a very wide moat that few, including Chinese copiers, will attempt to bridge because the technology - although not new - is special and the market size not large enough to justify the huge cost of entry. Those points should mean nice niche margins especially in the many instances where it is the OEM!

The simplest of all ways to improve margins for a niche company is by selectively increasing sales prices. Pricing is a science, and I see few signs that Chart knows much about that. They are not alone - such things kept me nicely rewarded in my full time working days!

My other pick is a niche company but mainly sells to OEM’s so does not have that flexibility but it has stability and is undoubtedly the world leader in what it does. That is...

 

Burckhardt Compression 

Burckhardt Compression Holding AG is a Switzerland-based manufacturer of reciprocating compressors. It is not listed in the US and I own it on the Swiss stock exchange in Zürich where its symbol is BCHN. For simplicity I will use BCHN in the rest of this article.  Like many Swiss companies it maybe unknown to many but for its customers, BCHN is outstandingly the world leader in what it does

BCHN's product portfolio comprises compressor valves, rings, capital parts, labyrinth piston compressor components, and hyper and secondary compressor components. Its customized compressor systems are used in the upstream and downstream oil and gas, gas transport and storage, refinery, chemical, petrochemical and industrial gas sectors. The Company also provides related services, such as repair and maintenance, installation, condition monitoring and diagnostics, and spare parts. It is present in more than 80 countries and operates production and assembly facilities in Switzerland, India, China, the United States, South Korea and Japan. 

The South Korean operation is especially important because that country is the world’s largest builder of LNG carrying ships plus more and more ships that are now using LNG because it is a much cleaner propulsion fuel than oil. 

Like Chart, BCHN is moving into hydrogen in a big way as well, serving these H2 MOBILITY & ENERGY applications.  

Full information including financials can be obtained here on the company website 

Also like many Swiss companies it is conservatively managed and has very little debt, sound but unexciting growth and no signs that will change in the future. The last results show this...

 

Growth rates in CHF 

Year on year, both dividends per share and earnings per share excluding extraordinary items growth increased 15.38% and 13.95%, respectively. The positive trend in dividend payments is noteworthy since only some companies in the Misc. Capital Goods industry pay a dividend. Additionally when measured on a five year annualized basis, dividend per share growth is in-line with the industry average relative to its peers, while earnings per share growth is above the industry average.

That dividend is 1.3% and is important because for non Swiss residents owning the company on the Zürich exchange means an investment in the world’s strongest currency too - the Swiss franc or CHF. According to Trading Economics around this date in April 2019 the USD1.00 would buy CHF1.026. Today it will buy CHF0.8926, an increase in the CHF of 14.9% meaning another nice dividend! Plus the stock price is up 12.87% in the past 12 months while the S&P500 is down 5.92%!  

Both Chart and Burckhardt should benefit from the...

 

Deferred Energy and Environmental Crisis 

Most countries have underinvested in energy supply generally and clean energy specifically for many years while demand has relentlessly increased from many things such as population growth, data centres, air conditioning, electric vehicles with new technologies such as quantum computing and AI/ChatGPT  with their enormous energy needs coming fast. Use of filthy fuels such as coal has created an environmental crisis and no new invention has yet enabled us to turn the clock back so we can start again! 

The global semiconductor manufacturing industry alone is projected to consume 286 terawatt hours (TWh) of electricity globally by 2030, more than doubling its total power usage in 2021 and surpassing Australia’s entire electricity consumption in 2021 of 267TWh, so firms must work harder to cut emissions, according to a new Greenpeace report. The industry is on track to emit 86 million tons of carbon dioxide equivalent (CO2e) in 2030, more than double Portugal’s total emissions of 40.8 million tons in 2021 amid rising demand globally for electronics.

The Group of Seven on its recent "hot air” conference was notable as the lack of new initiatives to reduce fossil-fuel burning was a let-down for those hoping for greater leadership from the world’s richest nations.

The G7 only reiterated a joint goal announced last year to “fully or predominantly” decarbonise their power generation by 2035, by taking “concrete and timely steps” towards phasing out domestic coal power generation, without adopting a proposal by Canada and the UK to move the date forward to 2030.

One positive was they also agreed to allow continued investment in the extraction of natural gas, which has a combustion carbon footprint roughly half that of coal and a quarter that of oil. Gas-fired power and heat generation provides a buffer against potential energy shortages as a result of geopolitical upheavals, as seen during Russia’s ongoing invasion of Ukraine.

Heat waves in Asia show the need for more cooling alone. Numerous heat records have been broken across Southeast Asia, China and other parts of the continent in recent days as the region remains in the grip of a dangerously scorching heat wave, with Thailand in particular experiencing unusually extreme conditions. Weather historian Maximiliano Herrera is describing it as the “worst April heat wave in Asian history.”

I will run through the situation in the biggest countries as follows...

 

China

According to the IMF, China - the world’s second largest economy - is forecasted to grow by 5.2% this year thus contributing one third of world growth. Last month in March exports surged by 14.8% compared with March last year. Much of that was the sale of electric vehicles, EVs, and their components.  Wherever their end destination recharging the batteries will require energy that is already in short supply. 

At home, Rystad Energy recently reported that road transport traffic had climbed above levels seen before the Covid lockdown. EVs are hitting the road in fast growing numbers and industrial output grew 3.9%, the most in several months . 

Such increases in demand plus last year’s heatwave and drought, which was the worst in six decades, has substantially curtailed hydropower production in Sichuan province of southwest China, a key supplier of energy to eastern and southern regions.

In February, Yunnan province, the second-largest hydropower producer after Sichuan, also suffered a prolonged drought that led to power rationing and reduced exports to neighbouring provinces.mean China faces a big energy shortfall this summer despite building many new power stations that are coal fired; thus also conflicting with China’s  environmental clean up targets! It is already the world’s largest importer of LNG and some of those power stations will get converted to gas from that when it gets more.

Natural gas is clean energy in China’s terminology - as it is when handled properly from source to end use - and China's Sinopec recently made the first ever equity stake in a Qatari LNG project by agreeing to take 5% of an 8 mtpa train from the North Field East LNG project. Sinopec's Chairman stated that the deal will "optimize China's energy consumption structure and enhance the security, stability and reliability of clean energy supply”.

Sinopec is also planning a 250-mile green hydrogen pipeline from Inner Mongolia to Beijing with initial capacity of 100k tons per year.

Somewhere in those processes there is a strong chance that Chart’s and Burkhardt’s technology will be involved. 

 

India 

India’s air is among the world’s most polluted and that pollution gets “exported” by wind currents. India is now the world’s 5th largest economy pushing once Great Britain further down the list. It is the world’s 4th largest importer of LNG and plans to become a world leader in Made in India hydrogen for use at home and for export. 

Some recent announcements from India’s hydrogen monitor include these:

  • EIB, IREDA exploring partnership to finance RE, green hydrogen projects in India: The European Investment Bank and state-owned Indian Renewable Energy Development Agency (IREDA) Limited are exploring a partnership on financing of renewable energy and green hydrogen projects in India. The collaboration will provide much-needed support for the development of renewable energy and green hydrogen projects in India, and help in achieving the government's goal of 50 per cent of installed energy capacity from non-fossil fuel based sources by 2030. Link
  • Ocior Energy to build green hydrogen, ammonia plants in AP and Gujarat: Ocior Energy is investing $4.86 billion to set up a 1 million ton per annum (mtpa) green ammonia plant in Andhra Pradesh and the Kutch district of Gujarat. It aims to deploy 4 GW of sustainable green hydrogen capacity by 2030. Link
  • Kandla and Tuticorin to be India's first green hydrogen ports: Kandla and Tuticorin ports will be India's first green hydrogen and green ammonia refueling hubs for green shipping. India is aiming to be a leading exporter of green hydrogen, setting an ambitious target of capturing 10% of the global green hydrogen market by 2030. Industries are now trying out export orders for green hydrogen. India is aiming to become a green hydrogen and green ammonia powerhouse due to its low cost of renewable energy capacity. Link

2030 is only 7 years away so much work has to be done before then! That has been made even more urgent as India’s power demand hit a record high during the recent heat wave that also created record demand for LNG carges. 

 

US 

At the recent CERAWeek energy jamboree in Houston the Financial Times correspondent there reported, quote: "CERAWeek has historically been an oil and gas focused shindig. But for years clean energy has been carving out a larger role in the event. These days, you can choose your own adventure: turn right at the escalator to hear how natural gas will save the world; turn left to hear the same about green hydrogen.

But the big change this year was the Inflation Reduction Act (referred to as the I-R-A in the US; European Union officials have opted for the phonetic “eera” pronunciation to avoid awkward parallels with Irish paramilitaries). Energy executives of all stripes were full of praise for the climate law.

“I think IRA is the most visionary legislation that any country has ever done in order to promote climate change,” said Seifi Ghasemi, chief executive of Air Products, one of the US’s largest hydrogen producers. It was a fair reflection of enthusiasm among other delegates here in Houston.” End quote. 

Air Products (APD) is also big in LNG and I have it in my portfolio. 

The US became the world’s largest LNG exporter last year.

(Click on image to enlarge)

Monthly U.S. liquefied natural gas exports (Jan 2016�&Jun 2022)

Data source: U.S. Energy Information Administration, Liquefaction Capacity Table, and U.S. Department of Energy LNG reports

That is set to grow further as more than $100bn in spending on new US LNG projects is in the pipeline for the next five years, according to an analysis by Wood Mackenzie. 2022 was a record year for signing long-term contracts, with 65mn tonnes per year in exports agreed to, more than triple the 2021 amount. Despite the growth in supply, they said the global market will remain tight through to the end of 2030 as Asia and Europe increase their consumption of the fuel.

At home more power supplies will needed as the economy is doing ok despite the doomsaying “experts” constantly forecasting recession. As one example, US steel maker Nucor (NUE) has reported very good results. Quote  "We had a very strong quarter, driven by solid performance in our steel products segment and increased demand for steel at our mills," said Leon Topalian, Nucor's Chair, President, and Chief Executive Officer.

"Demand from nonresidential construction, our largest end market, continues to be robust driven by strength in infrastructure and manufacturing investment.  Average steel mill utilization rates and profit margins were both up in the first quarter compared to the fourth quarter, with sheet and plate mills seeing some of the largest gains. This, coupled with year-over-year gains in automotive and stability in energy, gives us confidence that 2023 will be another very profitable year for Nucor.” End quote. 

Steel making uses filthy coal and many large makers are now turning to hydrogen. 

 

Germany 

Is Europe’s manufacturing and thus economic powerhouse but it has no coherent energy policy meaning panic measures will be required very soon that can only be suppled in a clean way by LNG imports in the short term until some hydrogen adds more to supply. 

Germany was heavily dependent on piped gas from Russia and has raced to replace that with LNG from various sources. Crazily it self inflicted more harm on its power supplies by closing the last of its nuclear power stations in recent weeks on top of more closures last year. That was to appease the Green’s who form part of a 3 party coalition governing the country. To replace that lost power supply they reopened old filthy coal fired power plants and the Greens approved that! 

On the positive side Germany’s dependence on imported LNG will grow considerably, hydrogen powered passenger trains have been in use in Germany for some time now with more to coming and more and more hydrogen car refuelling facilities are being built. A record 45 new public hydrogen filling stations were opened in Europe in 2022, as major refuelling networks begin to take shape. The number represents an 22% increase from 2021 and takes the total number of public hydrogen filling stations in Europe to 254, according to H2stations.org.  Nearly 100 of those are in Germany.  

German French aircraft maker is developing a hydrogen powered, zero emission passenger plane that will takes to the skies in the not too distant future: 
 

Image Source: Airbus


There are many more investments in LNG and hydrogen being made world wide and too many to put in an article so perhaps readers can add happenings known to them in the comments following this article.   

Many of those happenings will require technology from both Chart and Burckhardt leading me to conclude that both will be...

 

T’Winners From The Deferred Energy Crisis  

Hydrogen will be an outstanding winner in the longer term for both while LNG is now and and the bridge fuel until then. In short, hydrogen is a highly flexible fuel. That is why the UN’s climate change body, the UNFCCC, believes hydrogen could meet up to 20% of global energy demand by 2050 – about the same share of the energy system that electricity has today.

Given the need for more and clean being so great and that most to the world’s major economies are in good shape I see no reason why both Chart and Burckhardt should not ensure that investors’ portfolios stay in good shape too.  

CNBC INVESTMENT RATINGS for GTLS: 

Analyst Consensus & Trends

First Call expects 0.55 EPS for next quarter.
The current Price Target for GTLS is $191.69. That is an increase of 48%. 

The Financial Times analysts suggest a price for BCHN of CHF630. That is an increase of 12% plus the dividend. 

That forecast for BCHN is less exciting than that for Chart but is probably a safe bet.

Chart’s target could be a bit iffy but before the announcement of the Howden acquisition back in November 2022 the price hit a high of around $240.  

I shall take on the risk and buy some more Chart before the last quarter earnings are announced on April 28. 

Please put your ideas in the comments below on my picks and on your favourites that will benefit from the deferred energy crisis. We all learn from sharing knowledge.    


More By This Author:

Sika: Unknown And Undervalued Swiss World Leader With Enormous Growth Potential
LNG Shipping Cannot Keep Up With World LNG Demand
The Euro Is In Crash Territory

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Comments

James Hanshaw 2 months ago Contributor's comment

The latest Chart results support my views of its sound future for investors. James 

Jan Praskac 7 months ago Member's comment

Hi James, what do you think of the recent Chart drop after the results?

James Hanshaw 5 months ago Contributor's comment

Sorry I did not reply.  The markets have over reacted to many things in my view and so I am buying more Chart today. 

I suspect the next results release in February will be well received.

The other company I featured in the article remains a safe if unexciting buy.  James  

Paper Genius 7 months ago Member's comment

Did he ever reply?

Jan Praskac 5 months ago Member's comment

Not very good news. https://www.reuters.com/business/energy/biden-pauses-approval-new-lng-export-projects-win-climate-activists-2024-01-26/

Money Matters 2 months ago Member's comment

What's your current take?

Jan Praskac 5 months ago Member's comment

no. It has been going down in the last days. not very sure why.

Paper Genius 5 months ago Member's comment

I'm not sure either. Maybe the author, James Hanshaw, can explain why.

James Hanshaw 1 year ago Contributor's comment

I mentioned in the article that in would buy more Chart before the latest earnings were published on April 28. I am pleased I did and I expect more good times ahead:

https://seekingalpha.com/news/3961934-chart-industries-beats-q1-top-and-bottom-line-estimates-raises-fy23-outlook

James Hanshaw 1 year ago Contributor's comment

https://seekingalpha.com/news/3961934-chart-industries-beats-q1-top-and-bottom-line-estimates-raises-fy23-outlook

James Hanshaw 1 year ago Contributor's comment

More news comes almost daily to add strength to my article...

"The German administration plans to double its LNG import capacity to better prepare for potential supply disruptions including potential attacks on European gas infrastructure such as offshore pipelines"  

Karen Klein 1 year ago Member's comment

Very thorough.

Harry Goldstein 1 year ago Member's comment

Great read, thank you.

James Hanshaw 1 year ago Contributor's comment

Thank you for the compliment. James