The ITM Power (LSE: ITM) share price is trading lower in early deals this morning after the company issued a trading update.
The firm announced that it had moved its network of hydrogen refuelling stations into a separate wholly-owned entity. Unfortunately, it seems as if the market hasn’t taken this news well.
At the time of writing, shares in the company have fallen 5.8%. Year-to-date, the stock is off nearly 9%, although over the past 12 months, the ITM share price has added 237%.
It seems as if today’s decline relates to speculation that management is planning to sell the hydrogen refuelling business after the separation.
However, there’s been no indication of this. Instead, management has said the reorganisation will provide flexibility for scaling up and growth.
ITM share price growth
ITM Motive Limited is the name of the new division. It owns and operates a portfolio of 12 hydrogen refuelling station assets, eight of which are already in action, and a further four are being built.
This makes it the largest such operator in the UK. I think it also showcases the potential of the business.
Hydrogen has tremendous potential, but the fuel source is still relatively underdeveloped compared to alternatives, such as electricity. Compared to its 12 assets, there are over 9,000 electric vehicle charging points and 8,000 petrol stations across the UK.
The ITM share price is one of the few options available to investors who want to invest directly in hydrogen energy in the UK. As well as the company’s refuelling station network, it also owns what is considered to be the most significant polymer electrolyte membrane (PEM) electrolyser factory in the world. The enterprise is planning a second gigawatt-scale factory to help scale production. Put simply, PEM technology is a vital part of production hydrogen.
As well as this development, in mid-April, ITM submitted planning permission for the UK’s largest electrolyser facility to be built close to the UK’s biggest onshore windfarm. This will help produce green hydrogen, which is one of the most environmentally friendly and efficient renewable technologies. However, it’s also expensive to manufacture. This means the market is in its infancy.
Risks vs reward
I believe ITM has a bright future, especially if hydrogen takes off as a major fuel source. However, the group also faces many risks and challenges.
For example, it’s still a relatively small enterprise. Revenues totalled just £5m last year. This could limit the company’s access to financing and growth capital. It’s also still losing money. Last year, losses totalled £30m. This makes it all the more critical that the group has access to capital to continue with its growth plans. Unfortunately, that’s not guaranteed. As such, there’s a significant risk the business may run out of money before it becomes self-sustaining. That could have a devastating impact on the ITM share price.
Despite these risks and challenges, I think the company has potential, and I believe hydrogen has a significant role in the world’s future energy mix. Therefore, I’d buy the stock for my portfolio after recent declines. However, I’d limit my exposure in case the business does end up running out of cash.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.