I believe renewable energy is the next great growth sector and early investors still have a chance to get in on the ground floor. It can be hard to know which companies will perform well in the future, but I believe AFC Energy (LSE: AFC), based in the UK, has what it takes to become the cornerstone of a new hydrogen economy.

Challenges in renewable energy

Renewable energy is a functional technology, but it is still in need of some development. If we are to achieve a sustainable net-zero goal, we must overcome several obstacles.

Intermittency and energy loss are the two most significant of those obstacles. Wind and solar energy are plentiful and clean, but they are intermittent. We can’t rely on them to provide all of our electricity 24 hours a day, seven days a week. Electricity also loses energy as it travels further, which is why solar panels in the Sahara can’t easily power homes in London.

AFC’s competitive edge

What we need, in my opinion, is a fuel that is energy-dense, transportable, and created from renewable resources. That fuel, I believe, is hydrogen. I also think that AFC Energy could pave the way for its adoption.

AFC specialises in building the fuel cells required to make hydrogen fuel work.

Its competitive edge comes from a patent it has on ‘alkaline fuel cells.’ These fuel cells operate with lower purity hydrogen fuel. Producing hydrogen fuel is currently costly and complex, especially at the purity levels necessary for fuel cell operation. Vehicles that employ alkaline fuel cells will be able to be run at a much lower cost, making them a no-brainer purchase for consumers and businesses alike.

Company fundamentals

2021 was an eventful year for the business. AFC Energy raised income, boosted orders, and produced several new products in 2021. The stock trades at 33.30p, which is a decent price given the company’s size.

However, throughout 2021, the value of the stock dropped 60%, which perplexed me at first. AFC is currently debt-free, and revenues are expected to increase by 100% this year.

In November 2020, the share price soared £350% when AFC announced it had shared its alkaline technology with its research partners. I believe that this vote of confidence in the technology generated a lot of investor excitement, which pushed the share price far beyond its fair value. The slow bleed over last year was just a market correction.

My main concerns

I have some reservations regarding AFC. While revenues are up, profits are down. The firm is growing its operations and reinvesting in itself, but profits still aren’t expected for several years. It’s a high-risk bet predicated on whether hydrogen fuel becomes widely adopted.

But progress is being made in this regard. AFC recently inked a £4m contract with ABB, a Swiss electrical business, for a high-power electric car-charging application, while JCB just made a £1 billion order for hydrogen from Australia.

Every day, the number of applications for hydrogen fuel expands, from industrial machines to high-energy production to something as basic as bringing energy to the developing world. In the next years, any of these markets have the potential for tremendous growth. Alkaline fuel cells from AFC have the potential to reduce expenses for anybody who uses them. It offers a significant competitive edge, making it a worthwhile inclusion to my portfolio.

The post Diamond in the rough? This UK company could dominate renewable energy appeared first on The Twelfth Magpie.

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James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Many long-term investors in ITM Power (LSE: ITM) will have done incredibly well. Those who had the foresight to buy the shares almost five years ago and sell early in 2021 would be sitting on gains of around 2,100%. Since then, the tide has turned. The ITM share price is now roughly 42% below where it stood at the end of January. Will June’s trading update change things? And should I take advantage of the price drop?

ITM: The story so far

Let’s recap. ITM is a highly promising hydrogen energy storage and clean fuel company. Put simply, analysts believe the element — and the AIM-listed business — could play a huge role in decarbonisation (returning levels of CO2 in the atmosphere to more natural levels).

Back in 2015, ITM signed an agreement with Shell for hydrogen refuelling stations. A couple of years ago, this was extended to include forms of transport such as buses, trains and ships. In 2019, the company also announced a joint-venture with engineer Linde to deliver renewable hydrogen to industrial projects across the globe. 

In more recent news, ITM revealed that it had signed a collaboration agreement with (and received strategic investment from) Italian energy infrastructure firm Snam. Other developments include the opening of a gigafactory in Sheffield.

The ITM share price: where next?

The quick answer to where the share price is going is that no one knows for sure. A slightly more involved response is that it really depends on whether the company meets, beats or falls short of investors’ expectations on 10 June. Despite recent operational progress, the last of these is clearly possible. 

Back in January, ITM reported results for the six months to the end of October. For me, two numbers stood out. The first was a 92% drop in revenue to just £200,000, partly due to Covid-19 disruption. The second was a 28% rise in the adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) loss to £10.4m. Despite recent investment helping accelerate the company’s growth strategy, things could get worse before they get better.

Even if ITM shareholders accept this, more general market moves could still have a bearing. Right now, investors are shunning growth for value. This could prove problematic for the ITM share price’s near-term performance.  So, even better-than-expected news in June (thanks to the lifting of restrictions) may not change the stock’s trajectory. The company’s low free float — the number of shares available to trade — could also amplify any fall. Of course, the opposite is also true.

Not for me….yet

The potential for hydrogen-focused companies is massive. Unsurprisingly, ITM thinks its “rapidly developing backlog and tender pipeline” is evidence of its “world class” offering. 

I’m keeping my feet on the ground for now. Let’s not forget that the advent of the internet saw many companies coming to the market only to quickly disappear following the dotcom bust. A similar scenario may play out here. ITM could well prove to be one of the victors, but there can be no guarantee. When hype meets reality, the latter wins eventually.

Taking my own risk level into account, buying a clean energy fund remains the best strategy for me. This way, my money is spread across many companies rather than just one. Options here include the Invesco Global Clean Energy ETF or my favourite, iShares Global Clean Energy ETF.

The post Where will the ITM Power share price go in June? appeared first on The Twelfth Magpie.

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• Why are ITM Power shares 69% off?

Paul Summers owns shares in iShares Global Clean Energy ETF. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The volatile ITM Power share price

I’ve previously explored ITM Power’s business. But as a quick reminder, the company designs manufactures and sells electrolyser technology that extracts hydrogen from water. The process doesn’t produce any greenhouse gas emissions and is relatively cheap. Thus it is becoming more favourable than traditional methods of extracting hydrogen from fossil fuels.

In 2020, the ITM Power share price exploded by more than 425%. What happened? First, the UK government unveiled its plans to eliminate the country’s carbon emissions, placing particular focus on using green hydrogen technology. Meanwhile, ITM Power continued to publish encouraging progress reports on its various projects worldwide, despite the disruptions from Covid-19.

It also completed the sale of a 2MW electrolyser to Linde Plc for its H2Pioneer project in Austria. And just a few weeks ago, the company submitted its planning application to build the UK’s largest electrolyser facility in partnership with ScottishPower. Further information about this application is expected to arrive by the end of Autumn later this year. 

Overall, it seems that ITM Power is progressing relatively well. It’s securing new contracts and forming new partnerships, so I’m not surprised to see the share price going up overall. But today’s sudden 10%+ drop comes after the announcement that the business is moving its hydrogen refuelling stations into a separate entity. This move has added quite a bit of uncertainty about whether the management team intends to sell off the division once the separation is complete. While there is no indication of this, I think it’s fair to say the market is not particularly pleased with this latest move.

Investor expectations are exceptionally high

Despite what ITM Power’s £2.9bn market capitalisation might suggest, the company is still relatively small. In fact, last year, the firm only generated £3.29m in revenue. That’s a price-to-sales ratio of nearly 850!

Needless to say, the expectation of this business delivering strong performance in the future is very high. But based on the most optimistic outcomes of its projects, city analyst forecasts indicate a total revenue of around £32m in 2022. While this does place the forward price-to-sales ratio to a more palatable 87.5, that is still a lofty valuation.

Seeing a high level of share price volatility in companies with high expectations from investors is not uncommon. And if ITM Power is unable to deliver on investor expectations, then I think its share price could see sharp declines once again.

The bottom line

As promising as ITM Power is as a business, my opinion on its price remains unchanged. It simply looks too expensive for my portfolio, especially when other similar growth opportunities are available at much lower prices. Therefore the company is staying on my watch list for now.

The post The ITM Power share price is down over 10% today. Should I buy now? appeared first on The Twelfth Magpie.

More reading

• These 2 FTSE 250 companies are big Stocks and Shares ISA favourites in June. Time to buy?
• Down 30% in 2 weeks! Is ex-penny stock ITM Power now too cheap?
• Why are ITM Power shares 69% off?

Zaven Boyrazian does not own shares in ITM Power. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But since then, it’s fallen by nearly 35%. What happened? And is this a buying opportunity for my portfolio? 

What’s going on with ITM Power’s share price

ITM Power is a hydrogen supplier. The company designed and developed a technology that uses electrolysis to convert water into its base elements, namely hydrogen and oxygen. Given that the classic approach of extracting hydrogen requires fossil fuels and isn’t exactly environmentally-friendly, ITM’s zero-emission solution sounds promising. At least, I think so.

In 2020, the UK government announced new legislation that aims to eliminate carbon emissions by 2050, focusing particularly on utilising green hydrogen. This was fantastic news for the company. And with good progress being made in its existing projects with Honda, Nissan, and Royal Dutch Shell, its share price took off. So why is it falling now?

The pandemic has caused disruption to many businesses, and ITM Power is no exception. Due to government restrictions, there were numerous delays in the installation of its technology across multiple projects. Consequently, overall revenue generated between May and October last year fell by a massive 92%, and losses increased by 22%. Needless to say, this isn’t good news. A sudden decline in ITM’s share price is understandable in this context.

Reasons to be optimistic

The decline in revenue is undoubtedly bad. But it’s worth noting that this income is delayed and not lost. The disruption from Covid-19 is ultimately a short term problem. And once project instalments can resume, ITM’s management team expects approximately £3.1m of revenue flowing into the business.

As such, analyst forecasts indicate expected revenue of £6.7m by April 2021 that should surge to over £32m a year later. That’s nearly a 900% increase compared to what was generated in 2019.

Whether the firm can meet these expectations has yet to be seen. But it does appear to be on track. It recently announced plans to extend the capacity of its Shell refinery project by 100MW. And it also completed its first electrolyser sale in the Japanese market, further establishing its international presence.

The bottom line

I continue to admire ITM’s technology and the impressive progress the company has made over the last few years. However, as I’ve previously discussed, the valuation still looks exceptionally expensive. Even after the recent share price decline, ITM’s market capitalisation is around £2.5bn. Assuming it can achieve the expected £32m revenue in 2022, that places the stock at a price-to-sales ratio of 78.

To me, this looks like a classic case of ‘great business, bad stock’, and so it’s staying on my watch list for now.

The post The ITM Power share price is falling! Should I buy today? appeared first on The Twelfth Magpie.

More reading

• These 2 FTSE 250 companies are big Stocks and Shares ISA favourites in June. Time to buy?
• Down 30% in 2 weeks! Is ex-penny stock ITM Power now too cheap?
• Why are ITM Power shares 69% off?

Zaven Boyrazian does not own shares in ITM Power. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The rising AFC share price

AFC is a leading provider of alkaline fuel cells. These proprietary hydrogen-based power systems are modular by design and can be easily adapted for various use cases, such as hydrogen-powered vehicles. Its technology has been in development for many years, during which no revenue was generated. Therefore to keep the lights on, the firm has been dependent on external financing. But that may be about change.

In July last year, AFC successfully raised £31.6m through a share issue. This appears to have provided the firm with enough capital to see it through the near future. At the same time, it also strengthened its balance sheet. Consequently, AFC actually terminated its £4m financing facility with Thalion Global in November 2020.

A week later, it signed a new contract with BK Gulf to expand its manufacturing capacity. And in the following month, it announced the formation of a strategic partnership with ABB. The two companies will leverage each other’s technologies to develop and launch a series of high-powered electric vehicle re-charging stations.

Combining this positive series of events with the fact that AFC signed its first commercial order last year sent the share price up from 18.5p to over 75.6p over the course of 2020.

Taking a step back

Needless to say, for a young hydrogen business, these new partnerships and commercial orders are excellent news. However, due to the sudden surge in share price, AFC now has a market capitalisation of around £470m. By comparison, its new commercial order will only generate £1.1m of revenue. And so the stock looks exceptionally expensive in my eyes.

From what I can tell, the AFC share price is being propped up based on investor expectations surrounding the ABB partnership. After all, an estimated 1.2bn electric vehicles can make use of the charging station technology once it is ready. This undoubtedly presents a fantastic opportunity for the company. However, with no clear guidance on this project’s tangible value, nor any indication as to when it will be ready for commercial deployment, placing a value on this firm is quite tricky.

 The bottom line

As promising as the technology is, I’m personally not interested in adding AFC to my portfolio today. There are simply too many unknowns at this point in time, I feel.

Having said that, I will be watching closely the progress made with its ABB partnership, as well as monitoring whether it can continue to attract new sales of its other products.

The post The AFC share price is surging. Should I buy now? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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Zaven Boyrazian does not own shares in AFC Energy. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tesla CEO Elon Musk has made his views on the hydrogen fuel cell technology quite clear. He once called it a “staggeringly dumb” idea when compared to storing power in an efficient battery. But given he runs an electric car company, it’s fair to say he is biased.

Hydrogen technology is gaining significant popularity in several European nations – including France, Germany, Spain, Portugal, Holland, and soon the UK. Prime Minister Boris Johnson recently announced plans for a Green Industrial Revolution and one of its critical points is the use of hydrogen to power industries, transport, and homes.

The UK, along with other European nations, is slowly transitioning to a net-zero emissions economy. I’ve previously discussed what this means for the energy sector. But another crucial evolving industry is the automobile sector.

Today the two most viable solutions to eliminating vehicle emissions are to change the power source to either electric or hydrogen.

An opportunity to beat Tesla?

NASA have been using hydrogen to power its rockets since the 1950s. It is the most abundant element in the galaxy. However, a significant problem with hydrogen technology has been sourcing the fuel.

Originally, hydrogen was extracted from hydrocarbons — commonly referred to as fossil fuels. This is not exactly an environmentally friendly way of acquiring the material.

Luckily ITM Power (LSE:ITM) found a much better solution. Using patented technology, it uses a process called electrolysis to convert water into hydrogen and oxygen. The process produces zero greenhouse gas emissions.

Three projects – three hydrogen opportunities

Today ITM Power has three major projects underway.

The REFHYNE project is the leader in the effort to supply clean refinery hydrogen across Europe. Partnering with Royal Dutch Shell, and the European Commission’s Fuel Cells and Hydrogen Joint Undertaking (FCH JU), ITM will install and operate the world’s largest hydrogen electrolyser in Wesseling, Germany.

Its second project, HyDeploy, is experimenting with the viability of blending up to 20% hydrogen into the normal gas supply. The research is being funded by Ofgem, with the University of Keele testing the new solution. If successful, households could see a dramatic drop in energy bills with no changes to their consumption or domestic appliances.

The third project is by far the largest. H2Mobility is an effort to install and operate hydrogen refuelling stations across Europe. Supported by the British and European governments, 21 companies – including Honda, Hyundai, and Nissan – are collaborating to complete the project with ITM providing the fuel.

The bottom line

Combined, these projects, along with new supportive legislation, are making a hydrogen-based energy solution increasingly viable, not just for vehicles but households as well.

Like Tesla in the electric vehicle market, ITM Power has the technology and expertise to lead in the hydrogen market. However, the stock valuation today is borderline insane.

The market has priced the company at £1.6bn. While it may be worth that in the future, today it remains unprofitable and has little more than £3m in revenue.

I am keeping a close eye on the company, but for now, I’m not buying shares.

The post Forget Tesla! I’m looking at this hydrogen stock appeared first on The Twelfth Magpie.

More reading

• These 2 FTSE 250 companies are big Stocks and Shares ISA favourites in June. Time to buy?
• Down 30% in 2 weeks! Is ex-penny stock ITM Power now too cheap?
• Why are ITM Power shares 69% off?

Zaven Boyrazian does not own shares in ITM Power. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.