ITM Power: A £46.5m Decision and an Index Shuffle Put the 400% Rally Under the Microscope

Hydrogen stock ITM Power (ITM) eyes £46.5M grant decision on May 26 and MSCI Small Cap inclusion May 29, with analysts split on valuation after 400% rally.

The hydrogen specialist’s extraordinary 400% surge over the past twelve months now enters a phase where two distinct catalysts collide within the same week. On 26 May, the UK subsidy authority will rule on a £46.5 million grant for ITM’s Chronos production line in South Yorkshire, and three days later, the company’s inclusion in the MSCI United Kingdom Small Cap Index takes effect after the market close. Both events have the potential to either accelerate the rally or trigger a sharp recalibration.

The government money is already partly in hand. Great British Energy, the state-owned energy company and ITM’s largest single investor, has injected £40 million. The additional £46.5 million, administered by the Department for Energy Security and Net Zero, would go toward automating the electrolyser manufacturing process at the Sheffield facility, lifting annual capacity to one gigawatt. Chronos modules, each rated at two megawatts, are designed to cut production costs by 40%. A green light on 26 May would smooth the path for the management’s final investment decision in June.

Index mechanics add a separate layer of forced buying. ITM was added to the MSCI UK Small Cap index on 13 May, and the change becomes live after trading ends on 29 May. Passive funds and exchange-traded products tracking the index must adjust their portfolios accordingly, creating a predictable demand tailwind — at least in theory. The stock closed recently at 163.20 pence, just above its 200-day moving average of 161.30 pence, with the next resistance cluster around 170 pence.

The business fundamentals underpin the narrative, even if profitability remains distant. First-half revenue hit a record £18 million, and the full-year forecast has been raised to a maximum of £43 million. The order book stands at £152 million, with 71% of contracts now generating positive margins. Yet ITM still posted a double-digit million loss in the first half, and management does not expect to reach the breakeven point before 2028. Cash reserves, bolstered by the state funding, could climb to £215 million by the next financial year.

Analyst opinions diverge as sharply as the price action. Jefferies raised its target from 115 pence to 200 pence, citing higher earnings estimates, lower discount rates, and improved project visibility. Morgan Stanley turned bullish for the first time on a UK hydrogen stock since 2021, upgrading to “Overweight” with a 170 pence target and projecting positive EBITDA by 2028. UBS remains cautious, holding at “Neutral” with a 60 pence target, arguing that much of the operational improvement is already priced in. Short sellers have all but vanished — the short interest rate recently fell to zero.

The project pipeline stretches well beyond the Sheffield factory. A 150-megawatt capacity reservation with RWE, agreements totalling more than 710 megawatts in Germany, and a partnership with Rheinmetall on the Giga-PtX project for synthetic fuels bring a military application angle. In the UK, ITM will supply six Poseidon modules of 20 megawatts each for Uniper’s Humber H2ub project in Killingholme, with a final investment decision expected in 2026 and commissioning in 2029.

Technically, the stock is running hot. The relative strength index sits at 75, signalling overbought conditions. A recent session saw a 7.4% drop on volume of 13.2 million shares as profit-takers emerged after a fresh annual high. A key support level near €1.50 (approximately 161 pence) is being closely watched. With the grant verdict on 26 May and the MSCI rebalancing on 29 May, the next four days will test whether the fourfold rally has staying power or needs a pause.