Global Decarbonization Will Unlock Expansive Hydrogen Adoption

Key Takeaways

• Manufacturing innovations and new business models are set to sharply improve margins, recurring revenues, and customer adoption across industrial sectors.
  
• Policy support, technology advancements, and first-mover advantages position ITM Power for substantial market share growth and long-term expansion as green hydrogen demand accelerates.
  
• Ongoing losses, execution challenges, policy risks, intense competition, and supply chain uncertainties all threaten ITM Power's ability to achieve sustained profitability and scale.

Catalysts

Designs and manufactures proton exchange membrane (PEM) electrolysers in the United Kingdom, Germany, Australia, rest of Europe, and the United States.

• Analysts broadly agree that large-scale green hydrogen adoption is a revenue growth catalyst for ITM Power, but this may understate just how outsized the impact will be: European policy moves, combined with the recent unlocking of €500 billion for German infrastructure and the exponential growth in project backlog seen at ITM, put the company in position for far higher-than-expected market share gains and revenue compounding as green hydrogen transitions from pilot to multi-gigawatt infrastructure deployment.
  
• Consensus expectations around operational improvements and margin expansion underappreciate the magnitude of ITM's manufacturing transformation-near-perfect factory acceptance rates and a shift to batch testing will unlock step-changes in throughput, enable rapid revenue recognition, and drive a sustained reduction in both unit production and warranty costs, resulting in a sharper and faster increase in net margins.
  
• Hydropulse, ITM's new build–own–operate business model, has the potential to generate a reliable, high-margin recurring revenue stream, accelerate market penetration among industrial customers resistant to capex outlays, and enable ITM to capture downstream economics well beyond electrolyser sales-directly boosting both top-line and earnings quality.
  
• Real-world performance data from multiple operating reference plants substantially lowers perceived technology risk for customers in hard-to-abate sectors; as green hydrogen shifts from policy-driven to commercially anchored demand, this competitive edge is likely to trigger a network effect, leading to contract wins, higher factory utilization, and higher conversion of pipeline to recognized revenue.
  
• The rollout of the next-generation CHRONOS stack, with doubled power density and significantly fewer components, positions ITM to take advantage of accelerating cost-down curves in electrolyser technology, allowing the company to undercut legacy competitors and drive accelerated adoption as hydrogen's levelized production cost falls below that of fossil alternatives, materially expanding addressable markets and long-term earnings potential.

ITM Power Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on ITM Power compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming ITM Power's revenue will grow by 64.2% annually over the next 3 years.
• Even the bullish analysts are not forecasting that ITM Power will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate ITM Power's profit margin will increase from -174.8% to the average GB Electrical industry of 5.8% in 3 years.
• If ITM Power's profit margin were to converge on the industry average, you could expect earnings to reach £6.7 million (and earnings per share of £0.01) by about August 2028, up from £-45.5 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 bullish analyst cohort, the company would need to trade at a PE ratio of 277.5x on those 2028 earnings, up from -9.1x today. This future PE is greater than the current PE for the GB Electrical industry at 13.6x.
• 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 8.89%, as per the Simply Wall St company report.

ITM Power Future Earnings Per Share Growth

Risks

• The ongoing operating losses, legacy contract drag, and under-utilized factory capacity continue to pressure earnings and net margins, with management highlighting that profitability still depends on scaling up volumes and successfully transitioning to higher-margin contracts over time.
  
• The ability to commercialize new technologies such as the CHRONOS stack on schedule and at a competitive cost remains a key execution risk, as delays or cost overruns would undermine customer confidence, erode competitive advantage, and weaken revenue growth.
  
• Persistent competition from well-capitalized industrial conglomerates, accelerated market consolidation, and new technology entrants threaten to increase pricing pressure and may compress ITM Power's gross margins and future profits, especially as the reference plant advantage narrows.
  
• The sector's dependence on favorable rules, subsidies, and clear green mandates exposes ITM Power to risks of delayed government action, regulatory changes, and slower-than-expected green hydrogen adoption, which could shrink the company's market and negatively affect revenue.
  
• ITM Power's international growth is mainly concentrated in Europe, and ongoing trade barriers, potential supply chain deglobalization, or input cost inflation could limit global expansion opportunities and increase cost of goods sold, ultimately impacting net earnings and financial stability.

Valuation

• The assumed bullish price target for ITM Power is £2.33, which represents two standard deviations above the consensus price target of £0.89. This valuation is based on what can be assumed as the expectations of ITM Power's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £3.1, and the most bearish reporting a price target of just £0.4.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £115.3 million, earnings will come to £6.7 million, and it would be trading on a PE ratio of 277.5x, assuming you use a discount rate of 8.9%.
• Given the current share price of £0.67, the bullish analyst price target of £2.33 is 71.2% 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.