ITM Power (LSE:ITM) is an energy storage and clean-fuel company specialising in expanding UK hydrogen power. Companies and governments are increasingly looking at investing in renewable energy. Hydrogen power could be the future of green energy providing it can be harnessed in a way that is affordable to the masses. It also makes for an ethical alternative to investing in oil stocks. The ITM Power share price is up 11% this morning.
Disappointing financial results
Earlier in the week, ITM warned that total income for the year to April 30 had fallen 60% year-on-year. This is due to a combination of project delays and losses on legacy projects, including the Shell Refhyne project. Its recent joint venture with Linde, an engineering procurement and construction (EPC) specialist, should reduce the risk of this happening again.
ITM made a £9.8m loss from operations, an increase of 85%. As far as earnings before interest, tax, depreciation, and amortisation (EBITDA) were concerned, it lost an 84% wider £8.3m and it spent 29% more cash.
ITM has been a constituent of the London Stock Exchange’s AIM market since 2004. It has a market cap of £1.3bn, does not offer a dividend, while earnings per share are negative. This makes it a purely speculative, high-risk investment. However, for those savvy investors buying-in a year ago, the ITM Power share price has risen 750%.
Renewable energy stimulus
World governments are setting up stimulus packages to assist renewable projects in an attempt to clean up the planet. Germany has allocated €9bn to spend on green hydrogen projects. It aims for this to eventually contribute 10% of the country’s total electricity capacity. Meanwhile, The Australian Renewable Energy Agency opened a £38m round of funding for renewable hydrogen projects in April. It has received 36 applications for projects worth over £1.6bn, far overreaching expectations.
Race to Zero is a UK government initiative designed to mobilise leadership from businesses, cities, regions and nations to stimulate a zero-carbon recovery. We expect the UK Government to lay out its green recovery measures and plans for investing in renewable energy later this month.
Partnered with Linde, it seems ITM Power stands to capitalise on many of the climate change opportunities arising. The number of projects to tender for are growing, highlighting the increase in green hydrogen interest throughout the world.
With so many companies and countries competing in the race to harness this technology, the stakes are high. Yet despite government stimulus investing in renewable energy at an increasing pace, this business is unlikely to become profitable any time soon. The UK stock market is on shaky ground as the country heads into recession. I think share price volatility will continue for the foreseeable future. This is not a stock the risk-averse investor should buy, but I do think it is a stock with growth potential for those willing to take a gamble.
