ITM Power raises £165m as losses widen

ITM Power (ITM) specialises in ‘proton exchange member’ (PEM) electrolysers that can be used to produce ‘green’ hydrogen gas. This means that electricity derived from renewable sources is passed through water to split it into hydrogen and oxygen, and the only emissions produced are those embedded in the energy generation infrastructure.

The idea of using 'green' hydrogen as a fuel – and indeed hydrogen in general – has been gaining traction this year as governments come to the conclusion that it will play a part in our net zero energy future. That has spurred investor mania around anything hydrogen related and ITM has seen its shares rocket up by almost 200 per cent so far this year.

Yet investors should bear in mind that this is a company that has yet to turn a profit. In the year to 30 April, its statutory pre-tax loss widened to £29m, from £9.3m in 2019. This came as costs for developing prototypes more than doubled to £14m and the Covid-19 lockdown prevented projects from being handed over to clients and revenue from them being recognised.

ITM continues to suffer a net operating cash outflow, although thanks to a £59m equity raise in October, it finished the year with £33m of net cash, up from £5m a year earlier. That cash position is set to improve further. Following the release of its full-year numbers, the company raised £135m via a placing and secured a £30m equity investment from Italian energy infrastructure group Snam (IT:SRG). ITM is also conducting a £7m open offer and the proceeds will be used to accelerate the development of its technology and expand manufacturing capacity.

The company has agreed a commercial partnership with Snam whereby it will be the preferred supplier for 100 megawatts (MW) of potential electrolysis projects. If all of these get the green light, broker Liberum estimates this could bring in around £150m of revenue. The Snam deal is ITM’s second strategic equity investment after industrial gases giant Linde (DE:LIN) purchased a 20 per cent stake in the company last year. ITM and Linde have set up a joint venture that aims to deploy electrolysers on an industrial scale.

Demand for ITM’s technology is increasing – it is currently sitting on a record order backlog of £119m and has identified a further £325m-worth of opportunities that it can bid on. Yet it remains a highly speculative bet, with the share price being driven by wider hydrogen hype rather than fundamentals. Analysts still have not pencilled in when it might become profitable, yet it has a market cap above £1bn. Consensus forecasts place pre-tax losses at £13m in 2021, narrowing to £6.7m in 2022. Hold. 

Last IC View: Hold, 108p, 28 Jan 2020