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Ceres Power: Broker hikes valuation; likens it to another UK technology success story

“At scale, Ceres should generate 40-50% operating margins, akin to ARM Holdings," said the London arm of the German private bank

Ceres Power Holdings PLC -
ARM’s RISC technology became the default during the smartphone revolution of the last decade

The number crunchers at Berenberg reckon it’s only just begun for Ceres Power PLC (LON:CWR), the maker of revolutionary fuel cell technology that has some heavyweight outside backing.

Ceres’ share price has advanced around 50% so far this year, giving it a market capitalisation of £630mln.

However, analysts at the London arm of the German private bank said “we are confident the company is still only at the start of its multi-year journey” as it raised its target price for the shares to 470p from 290p.

In early afternoon trading the stock was changing hands for 406p, up 6% on the day.

Progress

Berenberg’s analysts made the chunky valuation upgrade after taking a closer look at Ceres' progress to date, while factoring in upcoming commercial landmarks.

They pointed out that Ceres is now the market leader in solid-oxide fuel cells. “While investment has been widespread across proton-exchange membrane fuel cell suppliers, global OEMs [manufacturers] are partnering solely with Ceres in the solid-oxide fuel cell space,” the analysts said.

In taking a closer look at the Ceres story, the Berenberg analysts estimate the company could feasibly increase its sales forty-fold – and likened it to another UK technology pioneer, ARM Holdings.

“Based on Ceres’s potential market penetration and royalty streams, we have modelled scenarios under which the company could generate £800mln of sales per annum in the next 15-20 years At scale, Ceres should generate 40-50% operating margins, akin to ARM Holding,” the analysts said.

ARM comparison 

ARM’s RISC technology became the default during the smartphone revolution of the last decade.

Ceres’ approach to fuel cells is as simple as it is effective. Its SteelCell advance overcomes two problems traditionally associated with other solid oxide fuel cells: cost and lack of robustness.

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

It 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.

Japanese boiler group Miura and Korean fuel cell specialist Doosan are also working on projects with Ceres.

Quick facts: Ceres Power Holdings PLC

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Price: 1186 GBX

Market Cap: £2.26 billion

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