AIM's Atome Energy rockets but Boohoo and Joules crash

These three AIM stocks experienced very different fortunes, but all had one thing in common. Our City expert explains.

Two sides of the energy crisis were seen on AIM today as green hydrogen stock Atome Energy (LSE:ATOM) jumped in value but retailers Boohoo Group (LSE:BOO) and Joules Group (LSE:JOUL) skidded amid the cost of living squeeze.

Atome shares rose 32.5p to a near record at 146.5p after it signed a major long-term renewable power purchase agreement in Paraguay, a deal that lays the foundation for the company’s first large-scale green hydrogen and ammonia project.

Higher fertiliser prices as the world looks to reduce its reliance on Russian gas highlights the appeal of green ammonia as a suitable alternative feedstock.

Atome is targeting first production within three years from its project in Paraguay, which is located close to potential off-take industries such as fertiliser and cement.

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Joint house broker SP Angel’s existing price target of 114p is under review after today’s agreement with Paraguay’s national utility, which covers 60 megawatt (MW) of power generated through existing hydroelectric resources.

SP Angel’s analysts said the company offered exposure to an exponentially growing market, with first mover advantage in Paraguay and Iceland. Both countries are ideally suited to produce green hydrogen given the continuous supply of green electricity.

They added: “The current macro situation in Russia and Ukraine has significantly impacted global fertiliser supplies, driving ammonia prices above $1,500 per tonne, more than triple its historic price.”

Joint broker Finncap is leaving its price target unchanged at 120p for now. However, it added: “This project clearly offers upside to our valuation while the green hydrogen and ammonia industry backdrop has also turned more favourable.”

Atome, which joined AIM in December at a placing price of 80p, is one of several green energy companies attracting interest as Europe races to reduce reliance on Russian oil and gas.

Others include Ceres Power Holdings (LSE:CWR) and ITM Power (LSE:ITM), although their valuations have been pegged back by rising raw material costs and impact of expectations for higher interest rates.

Big energy bills hit retailers hard

The other side of the energy crisis was shown today by Boohoo and Joules, whose AIM-listed shares fell 10.1p to 69.9p and 16.9p to 38.1p respectively. Both stocks had been above 300p a year ago, but have weakened considerably as the recent surge in energy bills contributes to weaker consumer demand and increases their own overheads.

Joules noted that trading conditions during and following the Easter period had become more challenging as customers focused on promotions rather than full-price sales.

Consumer demand for home and garden categories has also been subdued, particularly online, with its Garden Trading division performing significantly below expectations over its peak sales period in March and April.

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With Joules warning that its results for the year to May will be below expectations, analysts at Peel Hunt revised their £5.1 million profits forecast to a loss of £1.5 million. The expected surplus for the following year has also been lowered from £10.1 million to £4 million.

Joules, whose chief executive Nick Jones is to step down after three years in the role,  continues to make progress on moves to simplify the business and optimise the cost base. It is on track to reduce its exposure to China to less than 50% of historic levels and is creating a more balanced supplier base so it benefits from shorter lead times.

Peel Hunt reduced its target price from 110p to 60p following today’s update.

More tears at Boohoo

On Boohoo, analysts at Liberum cut their price target from 200p to 70p after the fast fashion chain’s in-line full-year results were overshadowed by weaker margin guidance.

Boohoo said its focus will be on retaining the market share gains that it has made over the course of the last two years. With current short-term cost inflation impacting consumers, it will look to maximise efficiencies so it can avoid passing on its higher costs.

It expects revenues percentage growth will be low-single digits with an adjusted margin of between 4% and 7% compared with previous 6% to 7% guidance. The challenging conditions come at a time when Boohoo is ramping up capital expenditure, including a new distribution centre in the United States to boost its next phase of growth

Downgrading to a "hold" recommendation, Liberum has cut its profits forecast for the current year by 76% to just over £25 million.

The broker said: “With margins declining, sales hard to come by and competition as rife as we have ever seen it, layering on debt and doing expensive capex projects (as needed as they are) seems unfortunate timing.”