Bernstein, a research firm, reiterated its Outperform rating on ITM Power Plc, while slightly reducing its price target (PT) from the previous estimate to 90p. The adjustment reflects a more conservative outlook on revenue and order intake but is partially offset by the company's improved capital expenditure discipline and cost control.
Bernstein's valuation incorporates a revised discounted cash flow (DCF) model, which includes ITM Power's financial year 2024 (FY24) results and the latest guidance provided by the company.
ITM Power, known for its proprietary electrolyser technology, has seen a positive shift in contract momentum, securing orders exceeding £47 million since May. This includes a significant 100MW REFHYNE II contract with Shell (LON:SHEL) this month. The company's backlog of performance obligations as of April stands at approximately £80 million, which translates to about 284MW of work in progress.
Furthermore, ITM Power has entered into a 500MW capacity reservation agreement with a global industrial customer and has been appointed the preferred supplier by Hygen Energy in June.
Despite the robust order intake, Bernstein notes that ITM Power's top line revenue, which is forecasted to be between £18 million and £22 million in FY25, does not fully reflect the underlying growth due to the timing of revenue recognition.
The company's adjusted EBITDA is expected to show a loss of around £35 million to £40 million for FY25.
Management anticipates reaching breakeven with the equivalent of 400MW of Trident stacks/skids production, which its Sheffield plants could accommodate.
Bernstein's base-case scenario forecasts that ITM Power will achieve a positive EBITDA margin by the fiscal year 2028. The firm's valuation model applies a two-stage DCF methodology, assuming a long-term growth rate of 5.0% and a weighted average cost of capital (WACC) of 13.6%.
The research firm's rating system compares the expected performance of stocks over the next 6-12 months against various benchmarks, depending on the market where the stock is listed. ITM Power's strong partnership with Linde (NYSE:LIN) Engineering, focus on capital discipline, cost control, and control over its proprietary technology contribute to the Outperform rating.
The company's net cash position at the end of April covers more than 70% of its market capitalization, providing a solid financial foundation.
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