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ITM Power PLC: DEEP DIVE
OVERVIEW

ITM Power making headway in the drive for clean fuel

ITM Power’s first-half results in January showed the hydrogen energy solutions provider has significantly strengthened its capability to deliver larger industrial scale projects
Electrolyser
OVERVIEW: ITM The Big Picture
ITM Power had £23.2mln worth of projects under contract as at 8 January, as well as a further £10.4mln of projects in the final stages of negotiation
  • Developing hydrogen clean fuel stations for vehicles

  • Power-to-gas storage for surplus renewable energy

  • Renewable chemistry reducing dependence on fossil fuels

 

What ITM Power does:

ITM Power PLC (LON:ITM) manufactures integrated hydrogen energy solutions to enhance the use of renewable energy that would otherwise be wasted.

The AIM-listed company’s Power-to-Gas business provides PEM (proton exchange membrane) storage systems which allow customers to convert excess electrical energy into hydrogen for injection into the gas grid or storage for vehicles.

The group's clean fuels solutions come in the form of modular hydrogen stations to recharge fuel cell vehicles. Hydrogen-powered cars are seen as being far better for the environment in terms of emissions than those running on petrol, as when you burn hydrogen, it produces steam, meaning only water is the by-product.

How is it doing:

ITM Power’s first-half results, released on 8 January 2019, showed the group has significantly strengthened its capability to deliver larger industrial scale projects.

The company said that the six months to the end of October 2018 had been a major transitional period as it continued its evolution from a research-focused company to one capable of manufacturing the equipment required by its expanding list of industrial partners.

The firm saw its total income in the first-half rise to £5.0mln, up from £4.4mln the year before, comprising £1.2mln of revenue (2017: £1.7mln) and £3.8mln of grant income (2017: £2.7mln).

As in previous years, the group expects its revenue to be weighted more towards the second half of the fiscal year.

The first-half loss from operations was higher than expected at £5.3mln (2017: £2.9mln) due to cost overruns on four “first-of-a-kind” projects as well as significant investments in growing the business and recruiting more staff – the headcount has more than doubled over the past year.

It also had a strong balance sheet at the end of the reporting period, including £15.6mln of cash.

READ: ITM Power pleased with progress at the halfway point

ITM Power had £23.2mln of projects under contract as at 8 January (2017: £27.0mln), as well as a further £10.4mln of projects in the final stages of negotiation (2017: £10.4mln), making a total backlog of £33.6mln (£37.4mln).

The group’s tender opportunity pipeline has also grown steadily and totalled more than £240mln at that time, up from £200mln at the same point a year earlier, representing 36 commercial tender responses within the last 12 months.

The average project size has shot up to £6mln from £3.5mln the year before, which ITM said reflects strong industrial demand for larger systems.

In February, ITM Power revealed it is part of a consortium that has received funding from the UK’s Office for Low Emission Vehicles (OLEV) to develop a refuelling station for fuel-cell electric vehicles.

The firm said OLEV had awarded the consortium £3.1mln in funding to deliver a 0.5 megawatt (MW) refuelling station and 51 fuel cell electric vehicles.

ITM said it would receive £1.8mln of this funding for the refuelling station, which would be delivered in the next 12 months.

Shell Beaconsfield will be the first site in the UK to bring hydrogen under the same canopy as petrol and diesel, providing drivers with a range of fuel choices to co-exist with traditional transport fuels.

ITM Power is also supplying the electrolyser system at the heart of the 12-month HyDeploy project which begins this year.

READ: ITM Power chief hails ground-breaking hydrogen pilot study

Backed by regulator Ofgem's Network Innovation Competition, it is being led by gas network Cadent in partnership with Northern Gas Networks, Keele University and a consortium of technical experts.

Hydrogen will be pumped into the Keele University gas system serving 17 faculty buildings and 100 domestic properties.

Further afield, in December 2018, ITM Power revealed an expansion in Germany where its subsidiary has signed a lease on new larger premises in Hungen, north of Frankfurt to accommodate both business development staff and technical support personnel.

The ITM Power GmbH business is involved with a number of key projects including a 10MW green hydrogen refinery project with Shell, a Power-to-Gas PEM electrolyser system being operated by Innogy, and an electrolyser system supplied to ZEAG Energie. It also supports three other plants in Germany and Holland.

Down Under, meanwhile, the company announced at the start of 2019 that it had secured the first sales of its hydrogen production systems in Australia.

It said four 250-kilowatt (kW) electrolyser units totalling 1-megawatt (MW) have been sold to three different Aussie customers.

On 19 March, the company named Toyota Australia as the first of those customers, and said further details of the other three sales will be released in due course.

The group said the electrolyser will generate hydrogen on-site at Toyota's facilities in Altona, Melbourne using renewable energy to split water, with the hydrogen to be utilised for refuelling Toyota's fuel cell electric vehicles including the Toyota Mirai.

What the boss says – Dr Graham Cooley, CEO:

“Power-to-Gas is now demonstrating real traction around the world and we remain very well placed to benefit from this development with our long-running reference plant in Germany."

Blue Sky:

In February, research house First Berlin pointed out that its high order backlog and rising tender opportunity pipeline has put ITM Power on course to break even by 2022.

Over the next three years, the research house is forecasting ITM’s revenues to rise to £28.7mln from £3.3mln in 2018, which should pave the way for ITM to break-even at the underlying earnings (EBIT) level in 2022.

First Berlin said it had concluded that ITM Power looks set to be a prime beneficiary of rising demand for green/low carbon hydrogen.

It noted that the Hydrogen Council expects demand to grow around tenfold from 2015 to 2050, which corresponds to compound annual growth of almost 7%.

“Hydrogen is an excellent all-round fuel and suitable for all three energy applications: power, heat, and mobility,” First Berlin pointed out.

“Furthermore, it is needed as feedstock in the chemicals and refining industries,” it added.

First Berlin initiated coverage on ITM Power with a ‘buy’ rating and 43p price target, compared with the 20.40p a share at which the group is currently trading, giving it a market cap of around £67mln.

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