Credit Suisse slashes target on ITM Power due to faster-than-expected decline in PEM pricing


Analysts at Credit Suisse reiterated their ‘underperform’ recommendation for shares of hydrogen energy solutions provider ITM Power due to the pressure on the company’s prices as joint-venture partner Linde takes a larger share of the system price.

They also slashed their target price for the shares from 340.0p to 235.0p.

The Swiss broker cut its estimates for ITM’s pricing for the 2023 fiscal year by 21% and by 10% for FY 2025.

To justify the change, it pointed to the reduction in contracted backlog pricing of 28% between September and December 2021 while pipeline pricing fell 20% between December 2021 and January 2022.

“This may indicate that Linde is taking a larger share of system price, a key factor for our Underperform rating, with ITM’s mgmt. guiding to a 60-65% share compared to Linde highlighting 48% on large orders,” they said.

“Looking out to 2030e we believe ITM’s share of system reduces to 50%, and reaches 45% by 2050e.”

The analysts also referenced the results from two studies that showed ITM Power’s PEM electrolysis might be at a disadvantage if green power purchase agreements were adopted, as that might favour alkaline and solid oxide technologies.

“Yet ITM’s share price implies PEM holds 60% of installed electrolysis by 2050e, which remains too optimistic in our view […].

“We note that ITM trades at 96x EV/EBIT in 2026e compared to 66x for Ceres Power (Outperform, TP £14.5), which has a higher-margin business that does not rely on the scale-up of the hydrogen economy near-term.”