ITM Power Faces a Clash of Catalysts as Index Rebalancing Meets State Funding Decision

Hydrogen electrolyser maker ITM Power enters MSCI index as retail sells; a government grant decision on May 26 could triple capacity and halve costs, but the firm remains loss-making.

The second half of May is shaping up to be a defining moment for ITM Power. After a breathtaking 401% rally over the past twelve months, the hydrogen electrolyser maker is now caught between two very different forces: forced buying from index-tracking funds and a binary state funding decision that could reshape its manufacturing economics.

Retail Sells, Index Funds Prepare to Buy

On 29 May, ITM shares will join the MSCI United Kingdom Small Cap Index after the closing bell. That triggers mandatory purchases by passive funds and ETFs that track the benchmark, providing a technical tailwind for a stock that has long flown under institutional radar. But the timing of the index entry has revealed a split personality in the shareholder base. At the same time that index rebalancing is set to drive inflows, retail investors have been taking profits in volume. On the AJ Bell platform, ITM recently ranked as the most-sold stock of the day, reflecting the tension between near-term euphoria and caution ahead of a pivotal government verdict.

The £46.5m Question

Three days earlier, on 26 May, the UK subsidies agency will rule on an application for a £46.5 million grant to support the Chronos production line at ITM's Sheffield facility. If approved, the funding would allow management to make a final investment decision in June on an automated line that would triple annual capacity to one gigawatt and roughly halve manufacturing costs. That is the core of the company's strategy to leave legacy loss-making contracts behind and shift toward profitable volume production.

The binary nature of the decision explains much of the recent jitters. The stock closed at 154.80 pence, having touched an intraday high of 174.80 pence earlier in May after announcing a strategic alliance with Worley that drove trading volume to 13.2 million shares. Worley plans to integrate the Neptune V electrolyser into medium-scale hydrogen projects, adding tangible revenue potential to the narrative.

Record Orders, but Still in the Red

The operational story has indeed strengthened. ITM posted record first-half revenue of £18 million, and its order book stands at £152 million, with 71% of contracts now considered profitable. The management has raised its full-year revenue guidance to between £40 million and £43 million. Yet the company remains loss-making: the pre-tax loss for the year ended April 2025 widened to £45.4 million from £27.1 million a year earlier. Jefferies, which lifted its price target from 115 pence to 200 pence, does not expect an EBITDA breakeven before 2028.

The balance sheet buys breathing room. With nearly £200 million in cash and zero debt, ITM has no immediate need for fresh capital. That financial cushion allows the company to pursue both the Chronos expansion and a new service model under the Hydropulse subsidiary, which builds, owns and operates decentralised green hydrogen plants—shifting the revenue mix away from pure equipment sales toward recurring income.

Pipeline Adds Weight

The pipeline keeps filling. Uniper has selected ITM for the Humber project, initially a 120-megawatt capacity, and additional agreements with RWE and other German customers add further validation. British market capitalisation now sits at around £1.11 billion. The market is clearly pricing in the manufacturing scale-up.

Between now and the end of May, ITM shares will be pulled between technical index demand, grant risk and retail profit-taking. A positive grant ruling would validate the production story and pave the way for series manufacturing. Once the MSCI rebalancing is complete, the real test will be whether demand holds up without the index tailwind. For now, all eyes are on 26 May.