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Ceres Power revenues on strong upward path

Snapshot

  • Unique and cost-effective fuel cell technology
  • Blue-chip partners including Bosch, Weichai and Honda
  • Revenue-generating business 
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Quick facts: Ceres Power Holdings PLC

Price: 734 GBX

LSE:CWR
Market: LSE
Market Cap: £1.26 billion
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Ceres is very well positioned to build on the strong momentum generated during the period as we look to play our part in delivering clean energy technology to enable a net zero future

Phil Caldwell, chief executive

What it does  

Ceres’ core SteelCell technology overcomes two problems traditionally associated with other solid oxide fuel cells (SOFC): cost and lack of robustness.

SteelCell can use a variety of fuels - natural gas, hydrogen, biofuel - that can be manufactured from widely available materials, making it the most cost-effective solution on the market.

“This scalability is Ceres’s key competitive advantage, in our view,” broker Berenberg said recently

Ceres has an impressive roster of partners. Key among them are Chinese engines giant Weichai Power, German engineering firm Bosch, US engine maker Cummins and Japanese carmakers Nissan and Honda. 

 

How it's doing

In September Ceres Power Holdings PLC (LON:CWR) confirmed a strong performance and good commercial progress in the first half of 2020. It delivered 21% revenue growth in the year to the end of June despite the coronavirus (COVID-19) pandemic delaying some sales.

The fuel cell and electrochemical technology firm said the year saw revenue and other operating income increase to £19.9mln from £16.4mln the year before. The order book is strong at £14mln while the pipeline of sales opportunities at the end of June stood at £54mln.

Gross profit improved to £13.8mln from £11.5mln the year before.

"Trading since the period end has remained strong with good commercial progress with our partners globally. 

The fuel cells specialist expects to sign new customer partnerships “as commercial demand remains strong”.

Longer-term, the environment appears to be supportive of companies such as Ceres, whose SteelCell technology can efficiently turn biogas, ethanol, or hydrogen into power.

The company received two major votes of confidence during the year just gone with German giant Bosch investing £38mln to increase its stake in the business to 18% and China’s Weichai putting up £11mln to stay at 20%.

The former has now begun manufacturing Ceres’ technology at its pilot facility.

The firm said the commissioning of its new Redhill manufacturing site began in January, and while ramp-up was, slower than anticipated (not surprising given the current challenges), the facility delivered record production last month.

Assessing the impact of COVID on the business, Ceres said it adapted well to lockdown, with the full onsite team returning in early May.

Some orders have been deferred, it said, but “results remain in line with market expectations”. Supply chain hiccups have been “managed well”, it added.

Ceres said it plans to invest £5mln to develop solid oxide electrolysis for hydrogen and potential synthetic fuels over the next 18 months. Plans are also in train to expand the Redhill facility.

What the boss says: Phil Caldwell, chief executive 

 "If anything, the current pandemic has only intensified the urgency for climate action and I believe Ceres has a no-regrets fuel cell technology for power generation that is highly complementary to today's energy infrastructure, is hydrogen ready for the future, and can form a critical building block in achieving a net-zero carbon future.”

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What the brokers say  

Berenberg - July

Investor interest in the hydrogen and fuel cell sector has moved beyond how the technology works and is now focused on competitive dynamics, market opportunities and electrolysis.

In this scenario, Ceres offers one of the best opportunities for equity investors, argues Berenberg.

In numerous business segments, Ceres screens very favourably, Berenberg says, particularly in stationary power applications and based just on existing partnerships it estimates an addressable market of 500GW.

In revenue terms, that amounts to a more than £950mln a year opportunity or 32 times this year’s forecast.

On a modestly favourable penetration rate of SteelCell in the stationary power market, Berenberg gets to a price target of 580p, but full penetration moves the number to 2,000p.

 

Inflexion points

  • In March, Ceres raised £49mln in total from share subscriptions by existing investors German firm Bosch and Weichai Power of China
  • In June, former Vodafone man Warren Finegold became chairman.
  • Ceres forecast revenues to rise by 20-25% to £20mln in the year to June

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