Nel ASA Shares Approach Critical Juncture

Nel ASA NO0010081235

A major contract announcement in November provided a fleeting moment of optimism for Nel ASA investors, but that enthusiasm has since evaporated entirely. The central puzzle facing the market is why the hydrogen specialist's stock continues to struggle despite securing multi-million dollar deals. The explanation lies in the profound damage revealed by recent quarterly results and a precarious technical chart setup.

Trading on the Oslo exchange, the share price is under significant pressure. Hopes for a sustained reversal, sparked by a buying surge in early November, proved to be short-lived. The equity is currently trading at a meager 2.31 NOK, placing it dangerously close to its 52-week low of approximately 2.06 NOK. A dominant downward trend remains firmly in control, with bullish investors searching in vain for support.

The market's fundamental skepticism is well-founded. Nel's third-quarter report, released in late October, laid bare severe challenges within its core operations. While the company managed to reduce its operational loss (EBITDA) to minus 37 million NOK and maintains a solid cash position of 1.8 billion NOK, its growth narrative is showing alarming cracks.

Most concerning are the dramatic declines in order activity:
* Contract Revenue Decline: Revenue from contracts fell by 17% to 303 million NOK.
* Collapse in New Orders: New orders in Q3 amounted to just 57 million NOK—a staggering 64% drop compared to the same period last year.
* Shrinking Order Backlog: The order backlog was nearly halved, shrinking to 984 million NOK.

Without an immediate influx of new contracts, a substantial revenue gap threatens upcoming quarters.

Market Ignores a Major Deal

This dismal backdrop makes the recent price action following a significant news item all the more telling. Mere days after the sobering Q3 figures, Nel announced a substantial fixed purchase order on November 5th. The deal, from Kaupanes Hydrogen AS and HyFuel AS, is valued at over 50 million US dollars (approximately 550 million NOK).

The scale of this single contract is immense, exceeding the total Q3 order intake by nearly tenfold. The news initially propelled the share price upwards by more than 20% to 2.70 NOK. However, the rally was abruptly sold into, and the gains have been completely erased over subsequent weeks, with the price retreating to the 2.30-2.40 NOK range. This price action suggests many market participants view the contract as an outlier rather than evidence of a durable operational turnaround.

Analyst Sentiment Remains Cautious

The stark contrast between the bleak quarterly performance and November's "big bang" deal has left analysts unconvinced. While investment bank Citi modestly raised its price target to 2.70 NOK, citing the new order, it maintained its "Hold" recommendation. The stance at Kepler Cheuvreux is notably more pessimistic; their analysts see potential for further declines to 1.90 NOK and advise investors to sell.

The consensus average price target sits around 2.23 NOK, implying that even at current levels, the stock is considered slightly overvalued.

Investors are navigating turbulent waters. A breach of the support level near 2.10 NOK could lead to a direct test of the annual lows. Conversely, if buyers fail to reclaim the 2.50 NOK mark soon, the existing downward spiral is likely to accelerate. The critical question remains whether November's major order will prove to be more than just a temporary respite.