For some time now I have been thinking that hydrogen could play an increasing part in the transition from fossil fuels to clean energy. Here's an article from the start of the year suggesting green hydrogen could transform the global economy. It's the most commonly occurring element in nature and is set to play a defining role in the 'green' industrial revolution as it replaces fossil fuels. It can be stored and used to power long-distant transport such as cars, lorries, trains and ships. It can be used to generate electricity. It is a clean source of energy and when used the only emissions are water and heat.
So, last year, I decided to add a few companies to my green portfolio which I hoped would be able to take advantage of this revolution. One of these additions was ITM Power - a small AIM-listed clean energy company added to my portfolio in August 2019 at the price of 37p. I have added to my initial holding over the months and now hold in both SIPP and ISA.
ITM has this week announced results for the full year to end April 2020 (link via Investegate).
This has been a difficult year with Brexit looming, a move to new accounting rules IFRS 15 and business hit by Covid-19. As a result sales revenues fell by 28% to £3.3m and grant income fell away sharply to just 2.1m compared to £12.9m the previous year.
Adjusted loss for the year was £18.1m (2019 £7.3m) however cash reserves increased to £39.9m compared to £5.2m last year. The value of assets increased to £67.5m compared to £38.3m in 2019.
On the positive side, the company announced a partnership with a leading global energy infrastructure operators, Snam who will make a £30m equity investment and 100MW preferred supplier to 2024. They are also raising an additional £135m to accelerate development of various projects and also an open offer to existing shareholders at 235p for an additional £7m.
"Our agreement and preferred supplier status with Snam more than doubles our contract backlog, a signpost of future revenue measuring amounts under contract and in the latter stages of negotiations, to £118 million while our tender opportunity pipeline, where we have provided written quotations over the last 12 months, now stands at some £325 million. Raising additional funds allows us to accelerate our response to the growing worldwide demand for green hydrogen as a key tool in meeting net zero targets. I am delighted to add Snam to our roster of partners. Snam is one of the world's leading energy infrastructure operators and is committed to supporting our industry, showcased by our preferred supplier status for 100MW of PEM electrolysis equipment." CEO, Graham Cooley.
Their new Gigafactory at Bessemer Park, Sheffield is nearing completion and will have the capacity for 1,000MW by the end of 2023.
Commenting on the results, Cooley said , " 2020 has been a transformational year for ITM Power. We attracted a strategic investor and joint-venture partner in Linde, the world's largest speciality gases company, we strengthened our balance sheet so that we can take full advantage of the rapidly expanding green hydrogen market and we put the finishing touches to the world's largest electrolyser factory in Sheffield. I believe we have the right products at the right time and the capacity to produce them at scale."
The company has seen an increase in qualified tender opportunities to £325m - 37 projects and a corresponding record backlog of £118.7m.
Despite the setbacks from Covid this year, the company maintains a positive outlook. Global energy markets are increasingly recognising the need for the use of green hydrogen for energy storage, transport and heating. The UK Committee on Climate suggest we will need between 6 and 17GW of electrolysis to reach net zero emissions by 2050. ITM with its partner Linde are well positioned to benefit from these opportunities.
The EUs new hydrogen strategy announced in July sets out a plan to increase green hydrogen capacity from just 140MW in 2018 to 4,000MW by 2024 and then 40GW by 2030...this will be hugely ambitious and also challenging but is a strong indicator of the direction of travel for the energy sector.
However, the company is still not profit-making as it invests to scale-up its operations. Cash burn this year was £23.3m which includes expenses in connection with the new factory.
Linde Joint Venture
Global industrial engineering group Linde acquired a 20% stake in ITM for the £38m. The 50:50 joint venture will target an increasing number of companies and governments that are looking to green hydrogen as a solution to tackling climate change. These include the storage of renewable energy and grid balancing as well as the essential task of reducing CO2 emissions from sectors such as transport and heavy industry. ITM will focus on hydrogen production from its electrolysers whilst Linde will look after the engineering and construction side of the projects. The benefits from this collaboration will likely become more apparent in future years.
|ITM One Year Share Price|
The results are again disappointing but the markets seem fairly relaxed and the share price is up 5% today at 270p - quite a jump from my purchase price of 37p last August. Hopefully the company can make some progress to profitability over the coming year or two with their new partners.
We are still in the early stages of the hydrogen revolution and whilst I thing there will be some big returns for investors in this sub-sector, there's are no guarantees that all the current players will reap the rewards. I am hoping ITM will make it with the help from Linde and will be looking to see what progress can be made over the coming 12 months. But for the time being, this can return to the bottom drawer.
As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in individual companies, especially those listed on AIM can be rewarding but is higher risk compared to collective investments - always DYOR!