ITM Power PLC (LON: ITM)

ITM Power PLC is an FTSE AIM UK 50 Index listed Company that generates hydrogen gas based on Proton Exchange Membrane (PEM) technology. This technology only uses electricity (renewable) and tap water to generate hydrogen gas on-site and has a product offering capable of being scaled to 100MW+ in size.

Growth Prospects

• Market Leadership: The Company manufactures world-leading PEM electrolysers with a proven record. It has the largest PEM electrolyser factory in the world.
• Strategic Partnership: ITM has recently concluded a strategic partnership agreement with Vitol Holdings SARL and formed a separate subsidiary, ITM Motive Limited. It is expected to enhance the scale and market reach.
• Commercial Projects: ITM had won a project for 24 MW in ammonia application in January 2022. Furthermore, it has received a Sinewave project grant from the German government. Meanwhile, the Company had signed a project regarding the delivery of 12MW of electrolysis equipment to be deployed in 2022.

Key Risks 

• Tightening of Monetary Policy: Federal Reserve Chairman, Jerome Powell, had hinted at an 0.5% increase in interest rates in the next Federal Reserve meeting due in early May 2022. Meanwhile, the Bank of England is expected to raise interest rates to their highest level in 13 years on 05 May 2022.
• High Cash Requirement: The business continues to be in a cash consumption phase, as it seeks to accelerate and build capacity ahead of anticipated demand and the inability to generate cash or finance the project could impact the outlook.
• Weak Global Growth Forecast: The World Bank has reduced its global growth forecast for 2022 from 4.1% to 3.2%.

Key Fundamental and Shareholders Statistics of ITM Power PLC. 

Linde UK Holdings No.2, Ltd. is the most significant shareholder as it holds nearly 100.00 million shares.

H1 FY22 Financial Highlights (for the six months ended 31 October 2021, as of 27 January 2022)

(Source: Company Filings)

• Robust Top-line Business: The Company’s top-line revenue had increased to £4.2 million during H1 FY22.
• Profitability: The Company’s gross loss came down from £10.4 million during H1 FY21 to £10.2 million for H1 FY22.
• Balance Sheet: The Company had managed to significantly increase its cash balance from £25.9 million at the end of H1 FY21 to £164.2 million as of 31 December 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 03 May 2022 at 10:43 AM GMT+1, ITM’s shares were trading at GBX 313.40, down by around 5.43% against the previous day closing price. Stock 52-week High and Low were GBX 536.15 and GBX 208.24, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood at ~41.16 levels.

Valuation Methodology: EV/Sales Approach (FY23E) (Illustrative)

Business Outlook

ITM delivered a decent business performance in H1 FY22, with solid growth in top-line business and excellent revenue visibility illustrated by significant backlog and pipeline. Furthermore, ITM remained focused on the delivery of products and converting the tender pipeline into contracted projects. The Company aims to enhance its production capacity to 5 GW by the end of 2024 to supply a growing base of customers. In a nutshell, the Company remained committed to meeting its production expectations of 33-50 MW of finished product in the shorter term.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the Company’s market leadership, increased production volume, continued investments, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on ITM Power PLC at the current market price of GBX 313.40 (as of 03 May 2022 at 10:43 AM GMT+1), with lower-double digit upside potential based on 30.75x EV/NTM Sales (approx.) on FY23E sales (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenario.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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