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. The Company manufactures world-leading PEM electrolysers with a proven record. It has the largest PEM electrolyser factory in the world.

On 08 August 2022, ITM will announce the final FY22 results.

Growth Prospects (also covers details of a trading update released on 09 June 2022)

• Continuous Product Improvement: ITM has demonstrated continuous product improvement, with MEP 2.0 pressure increased by 50% to 30 bar. It has also been updated that GEP 1.0 is on track for production by the end of 2023.
• Strategic Partnerships: ITM has won a 240 MW preferred supplier status of projects with Motive to support the rollout of refuelling infrastructure. Motive Fuels is a 50/50 joint-venture owned between ITM Power and Vitol.

Key Risks 

• Weak Profitability: The Company had posted a significant increase in EBITDA loss during FY22 when compared with FY21.
• Federal Reserve Rate Hike: The Federal Reserve has announced its biggest interest rate hike since 1994, an increase of around 75 basis points, while also pointing to further steady rises this year. Moreover, the Bank of England also came up with a fifth consecutive interest rate hike of 0.25% on 16 June 2022.
• Weak UK GDP Numbers: According to the Office for National Statistics, the UK GDP grew only 0.2% for the three months through April 2022 after 0.8% in the previous three-month period.

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 21 June 2022 at 08:08 AM GMT+1, ITM’s shares were trading at GBX 203.14, down by around 5.29% against the previous day closing price. Stock 52-week High and Low were GBX 536.15 and GBX 201.40, respectively.

On a daily chart, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Also, the 14-days RSI of ~30.73 illustrates an oversold territory. 

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

 

Business Outlook

The Company has ended FY22 on a solid note with several project wins, which have resulted in a significant increase in the work in progress. Moreover, the management remained positive about the prospects with a crucial role to play in decarbonising economies using green hydrogen. Furthermore, geopolitical tensions have accelerated the focus of the countries on energy and food security. The Company plans to boost its production capacity to 5 GW by the end of 2024. Overall, the Company aims to meet the global demand of decarbonisation.

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 record backlog, decent top-line business, strong financial ratios, 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 203.14 (as of 21 June 2022 at 08:08 AM GMT+1), with lower-double digit upside potential based on 22.81x 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 scenarios.

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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