Ceres Power Holdings — Strategic partnerships powering growth

Research: Industrials

Ceres Power Holdings — Strategic partnerships powering growth

Ceres Power Holdings’ innovative technology uses electrolysis to produce green hydrogen and solid oxide fuel cells to generate power. In a year where it moved to the Main Market of the London Stock Exchange, it recorded revenue growth of 13% and gross margin expansion to 61% (the highest in the sector, according to management), but is yet to record an operating profit (FY23 operating loss of £59.4m versus £54.0m in FY22). Ceres continued its strategy to drive innovation and technology across solid oxide fuel cells (SOFC) and hydrogen electrolysers (SOEC), increasing its R&D spending by 11% y-o-y to £54m (FY22: £48.5m). Management guides for FY24 revenue to be double that achieved in FY23, based on existing contacts. Net cash, including short term investments, was £140m at the end of FY23.

Written by

Harry Kilby

Analyst

Industrials

Ceres Power Holdings

Strategic partnerships powering growth

Industrials

QuickView

22 April 2024

Price

£1.42

Market cap

£274m

Share price graph

Share details

Code

CWR

Listing

LSE

Shares in issue

193.0m

Business description

Ceres Power Holdings is a UK-based developer, with global partners, of clean energy technologies. These include solid oxide fuel cells providing power generation and electrolysis creating green hydrogen. Ceres is engaging with the full hydrogen value chain to drive demand for its technology.

Bull

Key relationships in the Asian market bearing fruit for future growth.

Market-leading technology giving strong competitive advantage.

Strong net cash position.

Bear

Loss making and consensus expects losses to continue in FY24/25.

Stock price at a five-year low, showing a lack of investor confidence.

Possibility of delays in production, which will reduce investor confidence and time frame for becoming profitable.

Analysts

Harry Kilby

+44 (0)20 3077 5724

Andrew Keen

+44 (0)20 3077 5700

Ceres Power Holdings’ innovative technology uses electrolysis to produce green hydrogen and solid oxide fuel cells to generate power. In a year where it moved to the Main Market of the London Stock Exchange, it recorded revenue growth of 13% and gross margin expansion to 61% (the highest in the sector, according to management), but is yet to record an operating profit (FY23 operating loss of £59.4m versus £54.0m in FY22). Ceres continued its strategy to drive innovation and technology across solid oxide fuel cells (SOFC) and hydrogen electrolysers (SOEC), increasing its R&D spending by 11% y-o-y to £54m (FY22: £48.5m). Management guides for FY24 revenue to be double that achieved in FY23, based on existing contacts. Net cash, including short term investments, was £140m at the end of FY23.

Key partners

Management guides for a doubling of revenues in FY24, driven by deals with key partners like Bosch, Doosan, Weichai and Delta Electronics (see below). Bosch’s power units received €160m in European funding, while all machinery and processes have completed factory acceptance testing at Doosan’s 50MW factory in Korea. These partnerships are crucial for expanding Ceres’s global reach and the quality of its partner ecosystems are testament to the strength of its technology.

Deal with Delta Electronics

The agreement with Delta (based in Taiwan) was signed in January and will see a global long-term collaboration for fuel cell and stack production, where Ceres will receive staged revenues of £43m, with roughly half to be recognised as revenue in FY24. Technology introduction and construction is set to begin in 2024, with initial production expected by the end of 2026. This is the first dual licence deal to include SOEC and SOFC.

Valuation: Lacking investor confidence

Ceres's stock price surged c 67% following the announcement of the key dual licensing agreement with Delta in January, but the momentum was short-lived and the stock drifted back to five-year lows in the following months. This muted response suggests the market is awaiting further confirmation of the benefits of Ceres's strategic partnerships. This looks likely in time as the company is well positioned to capitalise on its capabilities such as new SOFC applications and the potential use of its technology for electrolysis and hydrogen production for industrial decarbonisation applications. Ceres’s ability to execute and deliver on its strategic partnerships (and its expectation of doubling revenues in FY24) will therefore be critical catalysts for the stock.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

Price/sales (x)

FCF yield
(%)

12/22

19.8

(51.5)

(24.9)

0.0

33.9

(8.7)

12/23

22.3

(53.6)

(28.0)

0.0

15.8

(16.9)

12/24e

54.0

(36.0)

(20.8)

0.0

4.9

(7.4)

12/25e

59.1

(31.8)

(17.5)

0.0

4.5

2.8

Source: LSEG

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

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United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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