ITM Power: the hydrogen stock’s CEO under the spotlight

by Lee Wild from interactive investor |

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Popular hydrogen stock ITM Power (LSE:ITM) has had an incredible few years, both in terms of business development and share price performance. Lee Wild took the opportunity to grill CEO Graham Cooley to assess the company’s true potential, when it will make big money, takeovers, cash burn and whether its future lies away from AIM.

Lee Wild, head of equity strategy, interactive investor: Hello, today I have with me Graham Cooley, CEO of ITM Power. ITM Power, it’s had an incredibly prosperous few years, both in terms of business development and share price performance. Now, for viewers who haven't heard of you could you tell them in simple terms who ITM Power is and what it does.

Graham Cooley, CEO of ITM Power: Sure. So, thanks very much. And, by the way, thank you very much for inviting me to do this video. So, ITM Power is a manufacturer of electrolyses equipment, this year we moved into the world’s largest electrolyser factory at Bessemer Park, which has a capacity of 1,000 megawatts or a gigawatt per annum. And we manufacture the piece of equipment that you use to split water into hydrogen and oxygen, so we make the device which, ultimately, makes green hydrogen by storing renewable power, splitting water and making hydrogen, which is a replacement for petrol, diesel or natural gas.

Lee Wild: The share price has risen from just 20 pence in 2019 to as much as £7.24, I think it was, in January this year. Now, you’ll tell me you don’t follow the share price, but what have been the major catalysts that interested investors should be aware of.

Graham Cooley:  Yes. So, I think there’s a number of catalysts in the macro market and there are a number of things that have specifically affected ITM Power. In terms of the overall energy landscape across the world we’re moving to net zero and, at the same time as moving towards net zero, we have a very significant reduction in the cost of renewable power and so, consequently, green hydrogen. Green hydrogen and the cost of green hydrogen is dominated by the cost of renewable power, and as the cost of renewables comes down and the amount of renewables that we use goes up, so all the drivers are in the same direction for green hydrogen, a cost reduction and an increase in volume. 

Because, as you have more and more renewables you need more and more energy zero and, of course, with net zero it’s important to realise that green hydrogen is the only net zero energy gas. So, you can only get to net zero if you use green hydrogen for replacing natural gas in the gas grid or for industry. OK, so that’s the macro driver and every large energy company now around the world is interested in green hydrogen. 

In terms of the company, I think there were two very important trigger points. One was the deal with Linde (NYSE:LIN) and the funding round that we did associate with that deal, and Linde are now our EPC partner. EPC is engineering, procurement and construction. And, Linde Engineering, being the world’s largest EPC contractor in the area of green hydrogen and the area of hydrogen in general, means that we can scale our business and I don’t have to employ all those people to pour concrete around the world. That was very important for ITM, so that was the first catalyst.

The second one was the £172 million funding round, moving into Bessemer Park and getting the strategic investment from Snam (MTA:SRG), and Snam are the world’s second largest gas infrastructure company, second only to Gazprom. So, you’ve got the acceleration in the macro picture and you’ve got two very important funding rounds and partnerships over the last two years.

Lee Wild:  ITM, as I’ve said, has come from something very small to something incredibly large, a £3 billion business. Now, there’s clearly massive potential there but how do you cope with the weight of expectation put upon you by this rapid expansion?

Graham Cooley:  Yes, I mean, the expectations are market expectations, and our own aspirations are, of course, very large, as well. But we lay out a plan, we laid out a plan in the funding round, and the funding round was all about the acceleration of technology and manufacturing and partnerships, and we’re sticking to that plan. So, when you’re a management team, although there are considerable expectations, it’s all about delivering every day on what you said you were going to do.

So, it’s all about sticking to the knitting, understanding what you need to do on a daily basis, keeping an eye on your targets and delivering.

Lee Wild: I mean, has the way that you run the company changed, given the increase in size from when you were a tiny company to a considerable business now, has that changed at all?

Graham Cooley:  Yes. I mean, we have a very strong executive team, that executive team that’s Andy the finance director, Rachel an executive director, and Simon Bourne the CTO [chief technology officer], we’ve worked together for a decade now. But what we have done is defined and recruited a level of management that responds to the executive team and spent considerable time picking some great managers.

And so, we have a new tier or management, there are 12 of them that report to the executive team, and then we’ve built the company.  So, we got to a steady state a number of years ago that was somewhere between 70 and 100 people, we’re now at around 220 people. We announced, actually, yesterday that we’re employing an additional 80 engineers and then that will take us to 300 in the company.

We moved into Bessemer Park, everybody is under one roof now, and it’s an incredibly well performing team. But absolutely looking at the way we manage the company it’s all about getting and building great skills.

Lee Wild: The company is currently loss making, I’m sure I and a lot of investors would be interested to know the route to profitability, when that might be, and what’s going to be your biggest profit generator.

Graham Cooley:  Yes. Well, the route to profitability, like any traditional company, is about selling products at a high margin, and the more of them you sell the more profit you make, it’s as simple as that, really. It’s all about us gaining market share in those early entry markets, and the early entry market is the industrial hydrogen market, that is the replacement of grey hydrogen, which is very carbonising, with green hydrogen.

So, we know our market, we partner with Linde, with Royal Dutch Shell (LSE:RDSB)and with Snam and we’re delivering on the business plan we put forward in the last funding round. And, I think if you look at research notes that have been written, there are now 11 research notes written on ITM Power, you only have to go back two years and there was only one, which was the house broker’s note, there are now 11. 

If you have a Bloomberg screen you can see eight, you can see a consensus developing in terms of revenue recognition over the years, and you can see consensus has developed about when the company goes cashflow positive. So, I feel very much more confident that we have a strong and well-articulated road map to follow.

Lee Wild: Do you know exactly when those brokers are saying we should expect a profit, Graham?

Graham Cooley:  Yes. I believe, if you look on Bloomberg, the most bullish is 2023, the most conservative is 2025 and consensus is 2024.

Lee Wild: You have recently mentioned the £172 million fundraising, so that’s money for the business, how are you going to spend it and how long will it last?

Graham Cooley: We defined a programme of technology and manufacturing acceleration, which I think was well articulated in the announcement we made about the funding round. It’s about moving from a two megawatt module to a five megawatt module, it’s about pre-engineering 20 megawatt train with our partner, Linde Engineering. It’s about manufacturing and manufacturing capacity, holding inventory so that we can reduce lead times, and having enough working capital to see ourselves through to cash flow positive.  How long will it last?  It will take us through to cash flow positive.

Lee Wild: Right. And, you’ve got relationships with many multi-national companies, such as Shell and Scottish Power, people will be familiar with.

Graham Cooley:  Yes.

Lee Wild: How much potential do these tie ups have?

Graham Cooley:  Yes, I mean, we’ve built ITM Power based on great partnerships. We’ve been working with  Shell now, I think the first discussions that we had with Shell were back in 2013, the first announced agreement we had with Shell, which was a siting and cobranding agreement, was in 2015. And, the refuelling stations we’ve built on Shell forecourts, we’ve built them in collaboration with Linde. 

So, I would say, we’ve been working with Shell and Linde for more than half a decade now, and they did extensive commercial and technology due diligence on ITM so they’re a great endorsement of our company and our technology. And, of course, Snam became an investor as well and did commercial and technology due diligence on ITM, as well.  So, we have three companies that have made an important level of endorsement, we also work with Orsted and Phillips 66. 

We did the first green hydrogen project with RWE, we announced recently a project with Orsted and Siemens Gamesa jointly, and our relationship with Scottish Power, of course, in the Green Hydrogen for Scotland initiative.  So, we pride ourselves on our ability to develop partnerships with global players and use those to develop our tender opportunity pipeline and our backlog, both of which stand now at a record. So, very important for us those global partnerships.

Lee Wild: Have you ever considered the possibility that, you know, you attract the attention of a much larger multi-national with deep pockets?

Graham Cooley: We’ve partnered with Shell and Linde and Snam and Orsted, they’ve all got deep pockets, and particularly Linde are an international company.  And, we’ve taken the approach at ITM that we’re interested in collaborating with those companies on a commercial level and two of them have become minority shareholders.

Lee Wild: But do you ever see a time where, you know, might there be an equation where you are taken over by one of these big guys?

Graham Cooley:  Yes, I mean, that may happen in the fullness of time, that’s not something that we seek. I think ITM and its board are looking forward to developing ITM into a very large energy company in our own right.

Lee Wild: Given the increasing size of the business, I mean, do you see a time where you might leave AIM and join the main market?

Graham Cooley:  I think we’re happy on the AIM market, actually, I think that AIM has developed, actually, quite a lot over the last few years, there are quite a few multi-billion pound companies on AIM. I think moving to the main market may be something we do in the fullness of time, but we’re not in a hurry to do that, actually. And, I think that, you know, AIM has served us well so far, so no particular plans right now.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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