ITM Power PLC (AIM:ITM) and Ceres Power Holdings PLC (LSE:CWR, OTC:CPWHF) have staged two of the most dramatic recoveries on the London market this year, with their shares up 160% and 230% respectively since January.
Jefferies has responded by sharply upgrading its price targets on both stocks while sounding a note of caution about valuations that are beginning to echo the hydrogen hype of 2021.
The bank raised its target on ITM Power, the Sheffield-based electrolyser manufacturer, from 115p to 200p and lifted its Ceres Power target from 480p to 920p, maintaining 'buy' ratings on both.
The moves are driven by a combination of earnings upgrades and lower discount rates, with Jefferies reducing its weighted average cost of capital assumptions for each company in recognition of improving visibility and a more supportive policy environment.
For ITM Power, trading at 167p, the key near-term driver is government backing rather than commercial momentum.
In early April the company received a £40 million strategic investment from Great British Energy and a £46.5 million grant from the Department for Energy Security and Net Zero to enable a 1 gigawatt Chronos production line in the UK.
A collaboration with Rheinmetall, the German defence group, on its Giga PtX project to establish a Europe-wide network of synthetic fuel production plants for NATO armed forces adds a defence-sector dimension that was absent from the investment case a year ago.
Jefferies is forecasting ITM revenues of £41 million for the current financial year, rising to £56 million in 2027 and £71 million in 2028, with the company not expected to reach EBITDA breakeven until 2028.
The cash position remains the central pillar of the bull case, with net cash of around £200 million giving the company more than three years of runway from its existing backlog alone before any capital would need to be raised.
Jefferies is candid, however, that green hydrogen as a market remains structurally constrained, with offtake uncertainty limiting bankable demand to a narrow set of industrial anchor projects and regulatory implementation remaining inconsistent across Europe.
Ceres Power, at 745p, is being driven by an entirely different thesis.
The company's solid oxide fuel cell technology, which licences its stack designs to large industrial partners rather than manufacturing at scale itself, has become a beneficiary of the surging demand for power solutions for data centres, with Bloom Energy's expanded Oracle partnership and capacity expansion lending credibility to the technology at precisely the right moment.
Ceres hosted a capital markets day three weeks ago and the stock has risen 120% since, a pace of appreciation that Jefferies acknowledges has pushed the valuation to around 20 times forward enterprise value to sales, a multiple last seen at the peak of the 2021 hydrogen cycle.
The bank's upgraded forecasts assume Ceres signs two manufacturing licence agreements in 2027 rather than one, and model faster capacity expansion at existing partners including Weichai, which has 1 gigawatt of systems now in deployment.
Revenue is expected to reach £67 million in 2027, when Ceres is forecast to turn EBITDA positive for the first time, before growing to £71 million in 2028.
With net cash of £83 million, Ceres has sufficient balance sheet to reach that inflection point without needing external capital.
Jefferies notes that the risk/reward on both stocks is asymmetric in the cautious direction, with its downside scenarios for ITM and Ceres implying falls of 52% and 46% respectively against upside cases of 37% and 48%.
Both companies are, in Jefferies' own assessment, trading on fundamentals that have limited explanatory power at current levels, with momentum and thematic positioning doing most of the work.