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ITM Power falls on 2021 numbers

But hydrogen boom and Covid-19 delays should see sales skyrocket this year
September 13, 2021
  • Hydrogen company's 2021 sales below forecasts
  • Work in progress has climbed to £36m, as of this month, compared to £16m a year ago

ITM Power (ITM) has shown the strength of the energy transition by punching its way to a valuation of over £2bn on sales of just a few million pounds a year, but the hydrogen technology company saw a hefty selloff on the release of its full-year numbers. Sales of £4.3m for the year ending April 30 were 12 per cent below consensus, according to FactSet data, although an improvement on the year before. ITM's share price dropped 12 per cent on the news. 

The year’s accounts were dominated by the £172m capital raise done in November, while ITM also opened a new factory in the UK, which it will ramp up to 1,000 megawatts (MW) capacity in just two years. The company builds hydrogen electrolysers, largely in 5MW units, which produce hydrogen gas from water and electricity. 

Its cash burn for the year was £33m, including £10m towards the new factory and headquarters in Sheffield. This year’s cash burn is expected to be similar, according to Davy Research analyst Colin Grant. 

The backdrop to the company’s market-cap surge in the last two years is hydrogen’s place in the energy transition. It is a crucial ingredient for existing industrial processes, like ammonia production, and can make other highly-polluting operations like oil refineries greener.

This has led to hydrogen’s inclusion in net zero plans in the UK, US and European Union, although much more renewable capacity is needed for ‘green hydrogen’ to be rolled out at large scale. This is all still very early stage, with ITM taking part in a trial combining offshore wind and hydrogen electrolyers - with the hydrogen shipped back to shore - that will run until 2024. 

The oil and gas industry is a major proponent of this technology, and ITM has built a 10MW plant at Royal Dutch Shell’s (RDSB) Rhineland refinery in Germany, used to “produce fuels with lower carbon intensity”. 

Hydrogen could also be used in energy-intensive sectors like steelmaking, although this is extremely expensive as existing coking coal and iron ore operations cannot just be switched over. 

ITM’s 2022 revenue will be dependent on global Covid-19 restrictions and also steel and micro-chip availability, although the company said sales would be “heavily weighted” to the second half. Consensus estimates compiled by FactSet see sales rising considerably this year, to £26.5m, but the company is not expected to reach a cash profit until 2024. 

We recommended investors buy ITM in January as the hydrogen rush gathered pace. The company has come down since then - it was at 611p at the time - but its market share and billions of investment in the sector should see sales start to catch up with the hype. Buy. 

Last IC View: Buy, 611p, 28 Jan 2021

ITM POWER (ITM)   
ORD PRICE:410pMARKET VALUE:£ 2.26bn
TOUCH:410-412p12-MONTH HIGH:724pLOW: 221p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:36pNET CASH:£169m
Year to 30 AprTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20172.42-3.55-1.7nil
20183.28-6.48-2.1nil
20194.59-9.32-2.9nil
2020 (restated)3.29-29.5-7.4nil
20214.28-27.6-5.5nil
% change+30---
Ex-div:-   
Payment:-