ITM Power (LSE: ITM) shares gained 10% by Tuesday afternoon, on the back of the company’s first-half results. That’s just the latest in a volatile share price story, though. So might we be heading into a new, sustainable, growth phase?
The hydrogen energy company enjoyed explosive growth a few years ago, and investors pushed the share price to a high in early 2021. Since that early growth bubble peak, though, we’ve seen an 87% slump.
Even with such a spectacular rise and fall, investors who bought ITM Power shares five years ago will have beaten the pants off a FTSE 100 index tracker. Over that timescale, ITM is still up 157% while the Footsie has managed a meagre 3.8%.
It’s been hard to value the stock, with the company having been consistently loss-making. And when we had warnings that it was set to underperform and lose more than expected, early investors dumped their shares and ran.
Facing facts
What’s so good about the latest update? For one thing, I was struck by a bit of refreshing honesty.
Chairman Sir Roger Bone admitted: “We raised capital to pursue an expansion strategy and in doing so underestimated the competencies and capabilities required to scale up and to transition from an R&D company to a volume manufacturer. As a consequence, we set unrealistic targets for project completion.”
ITM appointed new CEO Dennis Schulz in November, and his focus is on the core business. He told us “I am convinced that ITM’s technology can outperform the competition. However, product focus must be narrowed significantly“.
Too fast
Too many technology startups try to expand too quickly, raising fresh capital at every turn, and ultimately fail to recognise the key underpinning of success. That’s cash flow. What comes in, and what goes out, can kill even the most promising opportunity if the balance is wrong.
ITM expects to record a full-year adjusted EBITDA loss of between £85m and £95m, which is a lot. But it also reckons it should have £245m to £270m in net cash on the books at year-end.
That should keep the company going for a while. But we do need revenues to grow substantially if we’re to see profit before the money runs out. This year’s revenue should be only around £2m, with some revenue now deferred to next year.
Savings
ITM is looking at options for its Motive Fuels joint venture with Vitol. It could mean a sale, or simply the discontinuing of activities. Whatever the decision, the board hopes it will save around £28m that can be used in its core business.
In many ways, it looks like investors are back to where they were a few years ago. This is a company with a promising technology that I think could well be in high demand. But we don’t know when the first profits might arrive.
I’d rate ITM Power as only for investors who don’t mind a bit of risk.
