Why ITM Power and Naked Wines shares just crashed to multi-year lows

Both these companies have been popular among investors, but interest has waned and latest developments sent them scrambling for the exit.

Two former AIM high-flyers, ITM Power (LSE:ITM) and Naked Wines (LSE:WINE), have come under more selling pressure after shifting their strategies in the hope of rewarding investors longer term.

The prospect of short-term pain, however, meant green hydrogen business ITM hit its lowest level since early 2020, and Naked traded even further away from where it was prior to a pandemic boost to customer demand.

The wine subscription business told the City last night that it was reviewing its operational and financial plans for the next 18 months, and that it was likely to focus on cost restraint, profitability and “improved payback” rather than chasing revenue growth.

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No further details were provided ahead of a trading update on 17 October, but Naked is already in discussions over how this new plan will impact its credit facility.

Broker Jefferies called the update “slightly cryptic” but drew the conclusion that the return on investment in new customers is under pressure in the current challenging conditions.

It said: “Management looks to have made the decision that a more radical pivot towards profitability is the best course of action for the next phase.”

The City’s intrigue over the developments was fuelled by the abrupt resignation of non-executive director Pratham Ravi, who only joined the board three weeks ago as a representative of the company’s largest shareholder.

Broker Liberum, which has a “sell” recommendation and new target price of 100p, said today: “We think the resignation and the business update raise more questions.

“In effect, we think Naked Wines is saying it will rein back on new customer acquisition, reduce costs and aim to become more profitable. This means it will become a smaller business and the opportunity out there for growth is far smaller than anticipated.”

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Shares in the former Majestic Wine business were above 800p as recently as September 2021 after pandemic lockdown trends accelerated its growth in UK and US markets. But a downgrade to guidance in November signalled the start of a slide towards 150p by June as margins were squeezed by supply chain and storage costs.

ITM has lost its power

Today’s fall for ITM, which is seen as having a key role to play in the drive for energy security, came as it responded to escalating costs by opting not to progress a second gigafactory in the UK. It warned that its losses will increase in the near term and that long-time chief executive Graham Cooley is to step down after 13 years.

Dr Cooley has led ITM through its transition from an R&D business to a leading electrolyser manufacturing company. He said: “As we seek to become a global manufacturing powerhouse, now is a good time for me to step aside and hand over to someone with more experience in this area.”

ITM continues to have a capacity target of 5 gigawatt (GW), but meeting this will be skewed to international markets more exposed to subsidies and funding packages and achieved later than originally expected.
The company added: “Our ambitions remain as strong as ever, but we need to be nimble and flexible, and we want to ensure investment decisions are correct and right for the business and considered fully before capital is committed.”

Today’s results were in line with expectations and showed group revenues of £5.6 million, net cash of £366 million at the year-end and an adjusted loss of £39.8 million.

The company, which was the first hydrogen related company to be listed on the London Stock Exchange, recently opened the world’s largest electrolyser production factory in its home city of Sheffield.

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Shares topped 500p in November but rising raw material costs and higher interest rates have pegged back enthusiasm to leave the stock back at 112p today.

Investec’s target price has dropped to 370p, but the broker continues to have a “buy” recommendation based on the upside of ITM achieving its 5GW ambitions, which it believes could be financed by large government incentives.

The City firm added: “The company has highly attractive strategic intellectual property, tier 1 partners (Linde, Snam, Vitol, Shell), with technology that continues to progress.” In light of sterling weakness, Investec also thinks ITM may be attractive to overseas strategic buyers.