Vanadium Storage Will Face Volatility But Offer Hope

Key Takeaways

• Heavy reliance on large, infrequent contracts and high upfront costs limits revenue stability and increases vulnerability to delays in operational improvement.
  
• Competitive threats from lithium-ion and other technologies risk eroding price competitiveness, while high capital intensity and market expansion challenges hamper sustainable growth.
  
• Persistent losses, intense competition, project dependency, geopolitical and supply chain risks, and high investment needs threaten Invinity's path to sustainable profitability and earnings growth.

Catalysts

Manufactures and sells vanadium flow batteries and related hardware for energy storage markets in Asia, Australia, Europe, and North America.

• While demand for non-lithium long-duration energy storage is being bolstered globally by new regulatory programs (with multi-gigawatt-hour carve-outs for vanadium and similar chemistries, especially in markets like New York and the UK), the high upfront cost and long sales cycles of grid-scale projects mean that converting these opportunities into consistent revenue remains a significant challenge, limiting near-term top-line growth.
  
• Despite continued traction with partners and robust early feedback from flagship ENDURIUM deployments, the company's reliance on a small number of large, lumpy contract wins and a limited installed base outside initial markets exposes it to revenue volatility, increasing the risk that operating leverage improvements will be delayed and prolong EBIT losses.
  
• Although Invinity's cost-down roadmap for ENDURIUM projects an aggressive 70 percent reduction by 2030-potentially delivering competitive margins versus lithium-ion-there is persistent risk that ongoing rapid advances and further cost declines in mainstream lithium batteries could outpace vanadium's progress, eroding price competitiveness and constraining future gross margin expansion.
  
• While global decarbonization targets and the electrification of industry continue to expand the addressable market for long-duration storage, tighter financial conditions, shifting macro priorities, and increased capital intensity for utility-scale projects may lead to periods of weaker orders or delayed deployments, undermining the company's medium-term revenue pipeline.
  
• Even as Invinity's international expansion and partnerships offer a path to diversified revenues, the threat from well-capitalized competitors, including dominant lithium-ion manufacturers and new entrants in flow or alternative chemistries, could lead to pricing pressure and increased customer acquisition costs, making sustainable growth in earnings per share harder to achieve without further equity raises or dilution.

Invinity Energy Systems Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Invinity Energy Systems compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Invinity Energy Systems's revenue will grow by 198.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -454.6% today to 1.4% in 3 years time.
• The bearish analysts expect earnings to reach £1.8 million (and earnings per share of £0.0) by about September 2028, up from £-22.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 124.3x on those 2028 earnings, up from -3.9x today. This future PE is greater than the current PE for the GB Electrical industry at 14.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.88%, as per the Simply Wall St company report.

Invinity Energy Systems Future Earnings Per Share Growth

Risks

• Invinity continues to operate at a significant gross loss, with 2024 revenues down 75% year-on-year as the company transitions from VS3 to ENDURIUM, highlighting persistent negative cash flow and ongoing challenges in scaling revenue, which could pressure its ability to reach sustainable profitability and increase the risk of further equity dilution or difficulty accessing affordable financing in future periods.
  
• Intense competition from much larger and better-capitalized battery firms, notably CATL with a 20,000-strong R&D team and substantial innovation resources, raises the threat that rapid technical progress or cost reductions in dominant lithium-ion and emerging battery technologies could erode Invinity's competitive position, limit its pricing power, and constrain future gross margins and top-line revenue growth.
  
• The company's order pipeline remains highly dependent on securing large, lumpy projects and government-supported schemes like the U.K. Cap and Floor mechanism, introducing material volatility and execution risk to quarterly sales and margins; delays, cancellations, or changing regulatory priorities in these programs could cause significant swings in revenue and hinder margin expansion.
  
• Geopolitical challenges and the evolving global trade environment, including the risk of supply chain disruptions, tariff changes, or resource nationalism (especially in vanadium supply), could inflate manufacturing costs or strain project delivery timelines, with the potential to compress net margins and disrupt expected earnings.
  
• Ongoing high levels of required investment in R&D and manufacturing automation to remain cost-competitive and execute the cost-down roadmap, combined with inflationary headwinds in staff and operational costs, may constrain net margins and extend the path to earnings growth if anticipated volume scale and project flow fail to materialize as projected.

Valuation

• The assumed bearish price target for Invinity Energy Systems is £0.4, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Invinity Energy Systems's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £1.05, and the most bearish reporting a price target of just £0.4.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £133.9 million, earnings will come to £1.8 million, and it would be trading on a PE ratio of 124.3x, assuming you use a discount rate of 8.9%.
• Given the current share price of £0.2, the bearish analyst price target of £0.4 is 50.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.