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ITM Power share price halves in three months: Has it further to slide?

By Adrian Holliday

11:31, 21 June 2022

Large hydrogen tank in situ
Hydrogen Tanks at chemical refinery – Photo: Getty

Did climate change just get fixed? No, but that hasn’t stopped green hydrogen player ITM Power (ITM) losing more than 50% of its share price in the last three months, and more than 33% in the past month alone. 

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Neon hydrogen shares?

If valuations become too lofty and companies with troubled business models struggle, that’s a shorting window. Is ITM Power a shorting opportunity?

The ITM Power share price has already sunk hard, from more than 300p just three weeks ago to 210p this morning. Blackrock increased its shorting in ITM during early and mid May, according to shortdata.co.uk

Berenberg has cut its target price saying ITM Power is struggling to scale up and meet 2023 targets. Analyst Anthony Plom is sticking to a ‘sell’ rating on ITM Power shares, snipping the target price to 185p from 225p. 

‘Skewed to downside’

“ITM Power’s share price may have halved since our downgrade in September 2021, but we are convinced that risks to both consensus expectations and the stock’s rating remain skewed to the downside,” Plom said.

Longer term concerns on tech reliability, manufacturing yields and profitability all rankle Plom, plus encroaching competition. 

ITM has a hugely important joint venture with gas player Linde Engineering and though Linde is a key asset “there is a real prospect that Linde will partner with other electrolyser manufacturers, which could dilute ITM’s future revenue potential,” Plom says.

Possibly, but Linde also is heavily invested in this JV. 

Is Plom's view representative of the green hydrogen industry? That’s difficult to say because the hydrogen industry wears many caps, which is not easy for some City investors to grasp – it’s highly diffuse.

Massive upside, considerable risk

AFC is another hydrogen player but while its stock is down almost 50% year-to-date – ITM Power is down 45% over the same period – and has fallen 7% in the last month in comparison. 

But while ITM Power is down heavily over 12 months, like many other renewables, it’s up more than 800% over five years. 

The point being that early and unproven technology is highly volatile until economies of scale truly kick in. ITM Power, for example, has plenty of capital – net cash at year-end was £374m – but its cash burn is considerable. 

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The UK hydrogen industry is early stage which means, sometimes, building products at a loss to create a market. Again, high risk. 

Big heft need

Big companies like BP (BP) and Shell (RDSa) want answers, or the right technology, that aligns with their own management skill and multi-billion dollar scale.

And that’s difficult. BP confirmed last week it is buying a 40% stake in the Asian Renewable Energy Hub, a vast Australian renewable hydrogen project that will span 5,000 miles, with BP taking operational responsibility. 

Meanwhile the amount of hydrogen needed to replace gas and coal in Europe’s power sector is huge.

Though the UK Conservative government is backing hydrogen, claiming to ‘unlock’ £4bn of investment by 2030, this investment is still comparatively modest, lacking detail and clarity say some.

Maintenance tailwind

Beyond the UK, Rystad Energy says that the maintenance, modification and operations (MMO) market for renewables is now set to almost quadruple from $63bn in 2019 to $244bn by 2030.

Which has to be good news for some hydrogen player suppliers. 

Suppliers who are quick “will be in pole position to seize a significant portion of this expenditure towards 2030,” says Rystad analyst Ulrik Eriksen.

ITM Power final results arrive 8 August. 

Get your head around hydrogen in 20 secs

  • Heating your home is the biggest source of carbon emissions – but hydrogen contains no carbon.
  • Hydrogen can be produced in a number of ways. One method uses electrolysis with an electric current splitting water into oxygen and hydrogen.
  • Hydrogen is well suited to any country with a network of liquefied natural gas (LNG) terminals and pipelines – like Spain.
  • But the hydrogen road map is still poorly understood, which is also an opportunity.

Remember, the gift of timing the markets is given to few and it’s highly dangerous to be short when a stock has already fallen heavily.

Markets in this article

BP.
BP - GBP
4.967 USD
0.02 +0.410%
ITM
ITM Power
0.5470 USD
0.001 +0.190%
SHELa
Shell - EUR
31.035 USD
0.26 +0.850%

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