ITM Power: Analyst Schism Deepens as Grant Ruling and Index Entry Loom

ITM Power shares fell 7.4% as retail investors sold, but institutions buy ahead of UK grant ruling on May 26 and MSCI inclusion on May 29. Analyst targets range from 60p to 200p.

The water is getting choppy for ITM Power shareholders. Retail investors have been cashing in recent gains at a rapid clip, making the hydrogen specialist the most-sold stock of the day on AJ Bell last week. That selling pressure knocked the share price down 7.4% to 143.30 pence, a sharp snapback after a rally that had more than doubled the stock over the past twelve months. Yet on the other side of the trade, institutional investors are buying into the dip, convinced that the next few days will tip the scales decisively in their favour.

What is driving this bull-versus-bear standoff? Two hard catalysts are converging at the end of May. On 26 May, the UK subsidy authority will rule on a £46.5 million grant application for ITM's new Chronos production line in Sheffield. A positive outcome would unlock an automated manufacturing process designed to slash production costs by 40%, and management would then take a final investment decision in June. Just three days later, on 29 May after the close, ITM Power will be added to the MSCI United Kingdom Small Cap Index. Passive funds tracking the benchmark must rebalance, creating a wave of forced buying in a stock with a market capitalisation of roughly £1.1 billion.

The confluence of these two events explains why the analyst community is so deeply fractured. Jefferies has lifted its price target to 200 pence, pointing to falling capital costs and a cash runway that runs at least through to 2028. Morgan Stanley is equally bullish with an "Overweight" rating and a 170-pence target, forecasting an operating break-even by the 2028 financial year. UBS stands firm at the opposite extreme, holding a 60-pence target and warning that the valuation has run far ahead of fundamentals. The gap between the highest and lowest calls now exceeds 230% — a chasm unusual even for a high-growth, pre-profit industrial stock.

Operationally, the company is making headway on multiple fronts. A strategic alliance with engineering group Worley has opened a global channel for ITM's Neptune V electrolyser, with Worley integrating the unit into medium-scale hydrogen projects. At the same time, the newly formed Berlin subsidiary Hydropulse GmbH is building and operating decentralised green hydrogen plants, creating a recurring revenue stream. CEO Dennis Schulz has stated that the long-term ambition is for hydrogen molecule sales to eventually eclipse the traditional electrolyser business, mirroring the model of large industrial gas companies.

The order book supports that narrative. It now stands at £152 million, a record, and management considers the majority of those contracts to be profitable. Concrete projects include a 12.5 MW system for Kimberly-Clark via Octopus Energy, a ten-year service deal for a 20 MW project with MorGen Energy, six 20 MW modules for Uniper's Humber H2ub venture, and a 150 MW capacity reservation with RWE. Additionally, a programme with defence contractor Rheinmetall targets the production of decentralised plants for NATO-compatible fuels.

Yet the bottom line remains in the red. ITM's pre-tax loss widened to £45.4 million in the last financial year, despite first-half revenue climbing to £18 million and full-year guidance above £40 million. Cash reserves of £198 million and zero debt provide a solid buffer, but the path to profitability still requires several years of execution. Jefferies believes the cash cushion is sufficient until 2028, giving management time to ramp up the automated Chronos line and convert the pipeline into recurring income.

What happens in the next week will likely set the tone for the rest of the year. The index-driven buying on 29 May will collide directly with the retail selling wave that has been building. If the Sheffield grant also comes through on the 26th, institutional investors will have the wind at their backs. A rejection, however, could trigger a sharp reversal. Jefferies warns that downside risk from a negative grant decision could reach 52%, a sobering counterpoint to the MSCI-induced buying pressure. For now, all eyes are on the countdown to 26 May.