Why is the ITM Power share price falling?

ITM Power’s shares have sunk over the last two years, as the UK-based renewable energy stock battles a myriad of problems, leading to three profit warnings in just eight months as the company admitted that its annual loss will be higher than estimated. Investors will be hoping that new CEO Dennis Schulz can turnaround the company’s fortunes.

The ITM Power [ITM] share price surged 13.41% last Tuesday, after the Sheffield-based energy storage and clean fuel company released interim results along with a strategic update – but the shares have still fallen 54.64% over the last 12 months.

Founded in 2001, ITM Power designs, manufactures, and integrates electrolysers, ultimately producing green hydrogen using renewable electricity and tap water.

So, what’s caused ITM’s share price to decline so far over the last couple of years? A trio of profit warnings certainly haven’t helped reassure investors, while in last week’s interim update, the company also said it expects a wider loss than forecast for the full year. ITM also announced plans to cut jobs as part of a strategic plan led by new CEO Dennis Schulz, as the clean energy firm seeks to turnaround its fortunes.

How’s the ITM Power share price been performing?

ITM’s share price sank 76.74% last year, following a decline of 23.64% in 2021, as the shares plummeted from over 650p in 2021, to a 52-week low of 66.02p on 27 October last year. Since then, ITM’s share price has risen 75.48% to 115.85p at the close on Friday 3 February, with investors hoping the newly-announced strategic plan can help put the company back on track.

ITM’s market capitalisation has unsurprisingly taken a hammering, falling from £3.5bn at its peak, to £713.8m at last Friday’s close.

Why is ITM Power’s share price falling?

ITM’s full-year results in September highlighted the company’s problems, with the company also confirming the resignation of CEO, Graham Cooley. Three profit warnings in seven months – the latest of which came on 16 January – indicate the extent of the company’s difficulties, as ITM updated its guidance for lower revenue and a higher loss in its current financial year, which runs to 30 April. ITM’s share price plunged 18.6% at one stage, before closing the day down 12.04%.

A number of issues have led to the current situation, including delays to deliveries on customer contracts, written-down inventory due to design changes, and warranty provisions. Delays at ITM’s flagship project, the Leuna chemicals complex in Germany, have added to costs.

Chair Sir Roger Bone admitted that the company had “underestimated the competencies and capabilities required to scale up … and as a consequence set unrealistic targets for project completion”. Investors will now be pinning their hopes on Schulz.

New CEO Schulz to cull workforce as ITM narrows focus

ITM said last week that pre-tax losses more than trebled to £57m in the six months to October, as the troubled hydrogen maker said it now anticipates a full-year pre-tax loss of between £85m and £95m. According to Panmure Gordon analyst, Lacie Midgley, the revenue guidance was worse than expected.

The company also revealed in its half-year update that it will lay off over 100 employees – around 25% of its workforce – cutting the annual wage bill by 30% or £9m a year, report the Financial Times, as Schulz revealed his strategy to cut costs and improve performance.

Schulz, who took the reins in December, is to oversee a drive to cut costs and change engineering processes. He said that ITM must “transform from an R&D culture company to a professional and credible delivery organisation ready for volume manufacturing”. And underscoring the task ahead, he added: “This requires scrutinising every aspect of the business for cost-saving potential, and it will make difficult decisions necessary.”

The new strategy will lead to the group taking a narrower focus on only two core products, and pausing the development of new products until current ones are ready. Shultz said “I am convinced that ITM’s technology can outperform the competition. However, product focus must be narrowed significantly“. Midgley offered investors hope, saying the CEO “is saying the right things, but he has a big challenge ahead of him.”

What’s next for the ITM Power share price?

It’s a mixed bag among 22 analysts covering the stock. As collated by the FT on 2 February, three analysts rate ITM shares a ‘buy’, seven have an ‘outperform’ recommendation, another seven opted for ‘hold’, while five have an ‘underperform’ rating. 

The 20 analysts offering 12-month price targets for ITM Power have a median target of 124.00p, with a high estimate of 641.00p, and a low estimate of 70.00p. The median estimate suggests the shares have a potential upside of 7.03% compared with last week’s closing level of 115.85p.

Berenberg analyst James Carmichael said the change of management would be positive in the long term, but admitted that “there is a lot to do to turn the company around and regain market confidence”.

It remains a long road ahead for the company to deliver on its new strategy, and investors are likely to be waiting for some time before the ITM share price recovers to former highs.