I called ITM Power (ITM) a speculative buy in August 2019 at 38p. The share price advanced to 71p by the start of the year and has now almost doubled again. That is a gratifying reward for anyone who read my views and was influenced to buy only some 5 months ago. But where’s the share price going now? Before I say any more, I reviewed ITM as an investment case. I liked the story and called it a speculative buy, but I did not later buy myself. Why? Simple really – there are only so many shares you can hold (without becoming a tracker fund by default!). I thought I could see better value elsewhere. I was so very wrong! Since I last commented, the company has made good progress...
Firstly it very quickly implemented the AIM rule 26 declaration of significant shareholders on the website, which I noted was missing. Minor point but important in my view that companies react to commentary. We now see publically declared for example JCB as a strategic industrial partner and Peter Hargreaves as a HNW individual investor. I noted the high likelihood of further fund raises in August, and in October a placing at 40p came forward. It was cornerstoned by Linde, taking a 20.2% stake in the business as a result. I noted Linde as a key partner previously – I cannot see many better commercial partners for this business. I would note that once again the company provided an open offer for retail investors to participate in the fund raise at the same price. While EU rules limited the magnitude of the open offer, the company should be credited with once again allowing retail investors to benefit from the fund raise price. I really like this aspect. I would suggest other growing companies take note as they need further equity funding.
Any new product or service trying to deliver into a new emerging market needs the backing of well-financed and influential partners in my view. With JCB and Linde now holding some 30% between them with what appears to me to be clear alignment of expected outcome, and ongoing product delivery projects with Shell to roll out vehicle commercial hydrogen refuelling, I really cannot think of a better partner base. Then add in development projects with Ørsted, to combine ITM technology with wind power, and Iwatani, a Japanese based hydrogen specialist, I see these as very positive moves forward in commercialising the company’s products with some world scale and leading partners. Meanwhile the half year results to 31st October 2019, showed revenue down to £3.8 million (from £5 million in prior year), and increasing losses. It also confirmed cash at £56.9 million, and £23.2 million trade receivables balanced against some £18 million of current liabilities. The company advised cash burn will increase. I remain of the view this company will burn thought the cash available and will need more in due course. The balance sheet equity value was £74.4 million compared to the market cap of £581 million as I type. The key question to me is what view do I form on the current equity price?
I see that balance sheet equity value and the revenue and cash burn as being totally and utterly dislocated with the market cap. But on the other hand I see the Hydrogen fuel space as very much part of the future. I remain seeing the opportunities for vehicle power. I see the opportunities to inject hydrogen in the natural gas national grid. I see opportunities to combine excess wind power with hydrogen production. I see opportunities. I have to come back to a few simple views. I like the backers – even more than I did before. I think this company is in the right space at the right time and I think hydrogen is part of the future energy space. I would have to recommend anyone who followed my prior speculative buy to de-risk – that is only common sense! But despite the disconnect between financials and market cap, I maintain a speculative buy view. I will be looking to join the share register in due course – including hoping for a dip, after all no share goes up in a straight line (I hope!). Thing is, I have been hoping for that for the last 3 months…
Filed under: ITM Power, Versarien, Bobbie Hilliam, Advanced Oncotherapy, Scapa, Dunelm, AIM Regulation
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