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A maturing sector with profitable entities, high growth rates, and blue-chip interest. The fuel cell sector now contains some significant corporate successes, including PowerCell, SFC Energy, Ceres Power and Bloom Energy amongst others. The sector is expected to grow at an attractive CAGR of over 27%, with this supported by long-term drivers for adoption such as electrification, pollution reduction and economic competitiveness without subsidy, with barriers to adoption such as hydrogen fuel supply increasingly being overcome. We are therefore initiating coverage on three of the most exciting investment cases in Europe that we believe investors should know about. Displacement of internal combustion engines by fuel cells will accelerate. Internal combustion engines benefit from over 100 years of industrial commercialisation and mass production, but are inefficient, noisy, heavy, create toxic fumes, and are complicated with many moving parts requiring significant maintenance. Fuel cell-based powertrains have already displaced ICEs in numerous applications from materials handling to back-up power and buses. On a total cost of ownership basis, many more applications will transition given the cost competitiveness of fuel cells in the coming years, including mass markets such as heavy-duty freight and commercial delivery vehicles. Green hydrogen investment will unlock more markets: We believe the surge of investment into green hydrogen production is going to catalyse an acceleration in adoption of fuel cells. The fuel cell sector, which is dominated by hydrogen PEM fuel cells, has been held back by the limited availability of hydrogen, and it is our view therefore that the investments in electrolysis and hydrogen distribution infrastructure that are being made will transform the economics and demand for hydrogen fuel cells. Ceres Power (Market Cap £232m). After decades of technology development, Ceres Power is on the cusp of a major milestone as its first licensee, Doosan Fuel Cell, has started production of Ceres Power SOFC at a 50MW pa facility and royalties are forecast to flow through to Ceres before the end of the year. With next licensee Delta not far behind and considering a 200MW scale factory from the outset, it looks like production of Ceres Power SOFCs will accelerate sharply. We see Ceres Power as being a fast follower with a next generation product to the market leader Bloom Energy, with well-resourced and highly capable licensees looking to accelerate adoption and overtake the incumbent supplying AI datacentres. We feel Ceres Power’s current market cap does not reflect how quickly this could grow and how profitable and cash generative it could become with the licensees already involved. We initiate with a Buy and a 170p target price (c64% upside). PowerCell (Market Cap £130m) was spun out of Volvo and is a world leader in the design and supply of high-power hydrogen fuel cell stacks and systems. It employs a hybrid strategy of manufacturing and direct sales combined with capital-light licensing. Its first licensee is Bosch, which we believe demonstrates the strength of the PowerCell technology and IP and should be seen as a positive indicator for the potential for more technology licensing deals. With the company reaching EBITDA breakeven in 2Q25 and on a 12-month rolling basis, and with upside from additional technology licensing deals and an attractive valuation, we believe PowerCell is an excellent opportunity in the fuel cell sector. We initiate coverage with a Buy recommendation and SEK50 target price (c88% upside). SFC Energy (Market Cap £239m). SFC has built an attractive business that has grown from a supplier of small portable direct methanol fuel cells, into a market leader in the sub 50kW range, diversified with hydrogen fuel cells and power electronics. Its revenues are growing at over 30% pa, with the recent acquisition of Ballard’s EU stationary power business and its exposure to NATO defence programmes helping support this growth rate in the coming years. However, the company has recently downgraded its 2025 guidance with this blamed on the global slowdown and protectionist tendencies of the US negatively impacting customers' willingness to make decisions and investments. We see this as a short-term blip as there are few substitutes for the majority of SFC’s product lines, and view this as a good opportunity to invest for the longer term. We initiate with a Buy recommendation and a €26 price target (c73% upside).
CWR PCELL PCELL F3C
After decades of technology development, Ceres Power is on the cusp of a major milestone as its first licensee, Doosan Fuel Cell, has started production of Ceres Power SOFC production at a 50MW pa facility. So, the first Ceres Power based SOFC commercial sales are imminent, and royalties forecast to flow through to Ceres before the end of the year. With next licensee Delta not far behind and considering a 200MW scale factory from the outset, it looks like production of Ceres Power SOFCs will accelerate sharply, which we view as unsurprising considering the huge demand for high quality reliable power for datacentres which the technology provides. We believe Ceres Power is a fast follower with a next generation product to the market leader Bloom Energy, and with well-resourced and highly capable licensees looking to accelerate adoption and overtake the incumbent. With an already strong proposition, and additional licensees in the pipeline, we feel Ceres Power’s market cap overly discounts how quickly this could grow and how big it could get with the licensees already involved. We initiate with a Buy recommendation at 170p target price.
Ceres Power Holdings plc
Major milestone for Ceres and its partnership with Doosan Fuel Cell as it begins mass production of fuel cell power systems. Doosan Fuel Cell will begin mass manufacturing the stacks and fuel cell power systems at its facility in Joellabulk-do, South Korea. The construction of the facility began in 2022 and its completion marks the world’s first Ceres metal supported solid oxide fuel cell and systems facility to come on-stream. The facility has the capacity to produce 50MW of electrical power each year. This is a significant milestone for Ceres, and its partnership with Doosan, as it is the first of its licensing partners to enter mass production using its technology. The first sale of Doosan's solid oxide fuel cell products is expected before the end of 2025 and will initially be marketed to customers in South Korea. The primary market focus will be on applications in stationary distributed power, which includes data centres where AI has driven in a spike in power demand, power systems for buildings, stabilisation of renewable-based power grids and microgrids through peak power production, and auxiliary power solutions for marine shipping markets. Overall, this milestone marks an important step, demonstrating the maturity of Ceres SOFC technology as Doosan becomes the mass producer of the stacks and fuel cell power systems. Due to the pressure that AI is placing on power systems globally, fuel cells are becoming increasingly important to help meet future power demands, develop energy resilience and decarbonisation. The shares trade on CY25E EV/Sales 2.2x.
Site visit: The Merstham facility functions as a 3MW factory that can scale to 6MW, dedicated to the development and production of prototypes, while also showcasing the manufacturing process to prospective partners. The production process consists of multiple steps that can be automated by partners to improve efficiency. This complex and continuously evolving process encompasses significant intellectual property. We saw the largest stack that lends itself to industrialisation (fewer parts and 2x power density). Partner progress: As a reminder, Ceres offers a totally reversible cell that can produce power or hydrogen (green or grey) and Delta is Ceres’ first licensee for both SOFC and SOEC targeting growing data centre and industrial hydrogen markets. Last week, Delta invested £173m in a 82,500sqm factory. At full tilt, this could generate royalty revenue of c.$15m in outer years. Partners are targeting the power market with initial products expected to be natural gas-based systems that lend themselves to carbon capture providing a sustainable immediate solution to power shortages. Estimates: Our EBITDA estimates are unchanged; we forecast a loss of £15.5m this year and £11.2m next year, then a marginal positive in FY27E. Our view: While energy security is becoming more prominent in investor thinking, resurgent interest in fuel cell power appears overlooked. A forward EV/Sales of 2.1x compares to Bloom Energy (NR) on c.4.3x (fuel cells unexpectedly qualified for Clean Electricity Investment credits in the new US tax bill yesterday. Doosan’s US subsidiary HyAxiom could provide an opportunity). Any expansion in the partner portfolio, eventual clearance of Bosch’s residual 14% overhang (now in a 60 day lock-up) and first royalty payments from Doosan in H2 should drive the shares higher. Buy and 145p TP reiterated.
Ceres hosted a site visit yesterday at its Manufacturing Innovation Centre in Redhill; there was no update on current trading. The visit showcased Ceres’ IP and Ease of Partner Integration. Ceres low operational complexity aids business agility. In other news, we are encouraged by Delta Electronics £177m new manufacturing site, which demonstrates that Ceres’ partners continue to invest. We maintain our BUY recommendation and TP of 150p; current share price gives little credit to Ceres IP.
First hydrogen production at MW-scale demonstrator with Shell starts production The company has announced (on RNS Reach) that the Ceres SOEC demonstrator system, installed at Shell’s Technology Centre in Bangalore, is now producing hydrogen. Shell and Ceres have been in collaboration since 2022. The system has potential to produce 600kg hydrogen per day at full capacity, with an electrolyser module efficiency of 37kWh/kg H2. India has ambitious plans, targeting development of green hydrogen production capacity of at least five million metric tons per year by 2030. This latest advancement will develop pathways for the commercialisation of SOEC technology for large-scale industrial applications. The operational phase of the demonstrator is expected to show robustness and lower operational costs. Overall, this milestone marks an important step, demonstrating the maturity of Ceres’ solid oxide electrolyser technology, supported by Shell’s installation, integration and safety assurance expertise. Moreover, it illustrates how Ceres’ technology can scale to deliver a route to economically viable hydrogen for green steel, ammonia and synthetic fuels. The shares are trading on a CY25E EV/Sales of 1.2x.
Our WACC of 16.0% (up from 10.6%) is derived from a risk-free rate of 4.0%, a market risk premium of 8.0%, and a stock beta of 3.00 (previously 1.64). We transfer coverage of the company, reduce our TP from 550p to 120p, and reiterate our Buy stance.
FY24A results: Revenue was £51.9m and gross profit £40.2m, representing a gross margin of 77%. Importantly, the balance sheet remains strong as the business continues to invest, with £103m of net cash at y/e (reduced cash outflow of £38m vs. £42m in 2023). Record order intake of £113m, following signing of two manufacturing licensee partners, Delta Electronics and Denso, and an electrolyser system partner, Thermax. Outlook: FY25 revenue is expected to be broadly flat. Anticipated cost savings are on track. Additional guidance will be provided in the July update. Estimates cut: We update numbers for FY25 revenue guidance, Bosch termination (very disappointing but we note its wider cost cuts) and long-term assumptions based on one new partner / year (summarised overleaf). Inaugural royalty: Doosan is expected to start production this year of its SOFC power modules for applications such as data centre and maritime power systems. Initial royalty payments are expected by the end of this year. Model reminder: Ceres operates an asset-light licensing model. Partners (e.g. Doosan, Delta, Denso and Thermax) chose Ceres to leverage its low-cost, high-efficiency solid oxide technology based on a steel construct. Its SOFC systems provide short term opportunities (e.g. in data centre and maritime power markets) and SOEC technology offers longer term upside given it generates green hydrogen 25% more efficiently than incumbents in hard-to-abate carbon intensive industries. Valuation: Ceres’ IP, model and Asian bias, where costs and government support are preferable, remain key attributes. We derive a DCF based TP of 145p, acknowledging the Bosch overhang must clear for progress to be made.
The FY 24 results were slightly ahead of our expectations; with an adjusted EBITDA loss of £22.3m (PanLibE: £24.5m). We decrease our LBT estimates in FY 25 by 27% driven by mix effects and our assumption that Ceres can acquire one partnership p.a. Net cash (excl. leases) fell from £140.0m in FY 23 to £102.5m in FY 24, in line with our estimate. We increase our net cash estimate for FY 25 from £78m to £80m, as we expect some of the net working capital outflow in FY 24 to unwind. The Bosch exit was a disappointment but less significant than the market reaction, which creates a buying opportunity. Our FY 25 net cash estimate currently accounts for c.58% of the Market capitalisation, giving little credit to Ceres strong IP. We maintain our BUY recommendation but reduce our TP from 700p to 150p, due to more prudent DCF assumptions.
Post period update The Company has provided a further post period-end trading update ahead of FY results on 21 March. At interims on 27 September, the Company guided to revenues in the range of £50-60m. This was refined to £55-60m with a gross margin of 78-80% in the update on 29 January. As the audit is being finalised, there is now some uncertainty over whether a single £5m contracted milestone payment should be recognised in 2024 or whether it is more appropriate to recognise it in 2025. This does not impact the total revenue recognised under the contract or the company’s cash position. To remove any uncertainty, and whilst the Company is working to clarify the correct accounting treatment under IFRS 15, Ceres is reverting to the original revenue guidance of £50-60m and confirms that its gross margin will be over 75% for the year. Our view While this implies a downgrade to FY24E, but an upgrade to FY25E, debate with the auditor risks further unnerving investors following the Bosch announcement that it would end its partnership with Ceres and that it intends to divest its minority holding of 17.4% (released late last month when we placed our forecasts, rec and TP under review). We await further clarity with FY results next Friday.
Following a wider group strategic review, Bosch has released a statement this morning relating to the realignment of its operations and investments in stationary fuel cell power technology and it has informed Ceres of its intention to discontinue its operations relating to the industrialisation and preparation of production of its decentralised power-supply systems based on solid-oxide fuel cell (SOFC). As a result, Bosch intends to end its partnership with Ceres, which began in 2018, in an orderly way. As part of revised strategic decision, Bosch intends to divest its minority holding of 17.44% of Ceres in an orderly manner. The Bosch Group representative who is a non-executive on the board of Ceres, Uwe Glock, will step down with immediate effect. The impact of Bosch's decision will have no impact on Cere's consensus expectations for FY25. Overall, this is a disappointing update. However, we appreciate and recognise that the decision to discontinue the partnership is part of broader strategic review by Bosch and we note that it does not reflect Bosch's confidence in Ceres or its technology. As a reminder, over the last 12-months Ceres reported record order intake of >£110m as a result of 2 new manufacturing partners and an electrolyser system partner (Delta, Denso and Thermax). We see Ceres’ royalty model and Asian / EU positioning as winning attributes given current US politics. Why partners chose Ceres. Partners chose Ceres to leverage its low-cost, high-efficiency technology based on a steel construct. This operates at an intermediate temperature range, which removes the need for hard-to-source, expensive materials. Furthermore, the flexibility of its licencing model mitigates execution risk and provides tariff risk insulation. We place our forecasts/TP/Rec under review.
Strong FY24 progress: Revenue will be at the upper end of previous guidance, between £55-60m (vs. INVe £55m and £22m in 2023). Record order intake of >£110m was due to the signing of two new manufacturing partners and an electrolyser system partner (Delta, Denso and Thermax). Gross margin is expected to be between 78-80% (vs. INVe 78% and 61% in 2023). The cost cutting announced at H1 was implemented to reduce costs by c15%. Ceres’ b/s remains robust with y/e cash & investments of c£102m. Asian focus: In Taiwan, Ceres’ first licensee for SOFC and SOEC technology, Delta, is progressing well towards manufacturing. This partner is targeting the industrial hydrogen and data centre markets. McKinsey estimates AI could see datacentres accounting for 5-9% of total electricity demand. In Japan, Ceres has completed the upfront technology transfer to Denso. In India, Thermax has begun developing assembly facility layouts to accelerate market entry using Ceres’ IP. In South Korea, Doosan production is on track for launch in H2, delivering Ceres’ first royalties. Why Ceres: Partners chose Ceres to leverage its low-cost, high-efficiency technology based on a steel construct. This operates at an intermediate temperature range, which removes the need for hard-to-source, expensive materials. Furthermore, the flexibility of its licencing model mitigates execution risk and provides tariff risk insulation. Estimates / our view: Our estimates are unchanged; short-term estimate risk is to the upside. Prelims will be announced on 21 March. Overall, Ceres is differentiated by its licensing model (currently with seven licensees), focused on Asia thereby providing insulation from US market negativity via the new administration. Buy and DCF-derived 765p TP maintained.
We sat down with Ceres Power CEO Phil Caldwell, opening with a recap of the company’s highly differentiated, low-cost, high-efficiency solid oxide technology, offering potential for an ultra-low levelized cost of hydrogen.
No other company in the UK, or global, New Energy & Clean Tech space is scaling up manufacturing of its technology as rapidly as Ceres. More impressively, no other company has reached peak investment phase and is able to reduce overall costs whilst continuing to drive rapid commercial acceleration across both Europe and Asia. H1/24A was a record period for Ceres, and despite the shares +50% in September, with material, high-margin, recurring royalty revenue expected within just 2 years creating a clear pathway to positive FCF generation and EBITDA profitability, that is only the beginning. We reiterate our BUY with a new 700p TP (from 650p). Ceres remains a top pick.
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CWR PTEC GRG JD/ SAGA TPT GFRD SSPG JDW IPX SUS CMCX MARS LIO TET DVL MRLWF
Significantly reduced cash outflow of £13.9m (1H23: £21.1m) saw Ceres end 1H24 with net cash and equivalents of £126.1m, ahead of our £120.0m estimate (1H23: £161.2 m). We maintain Buy, TP 550p.
H1 progress: Revenue increased by 144% to £29m and record H1 order intake of £47m grew to £103m by 31 August. Gross profit increased by 217% to £22.9m, a margin of 80%. The adj. EBITDA loss significantly reduced to £9.0m (H1 2023: £23.5m loss), demonstrating the operational leverage. Moreover, cash outflow reduced to £14m from £21m in H123, resulting in net cash of £126m. Importantly, cash outflows peaked at £42m last year. Significant endorsements: Global manufacturers and systems developers Delta, Denso and, most recently, Thermax have chosen to partner with Ceres this year to leverage its technology and the flexibility of its licencing model. In short order, Ceres has progressed from SOEC investment phase to commercial partnerships and a demonstrator being commissioned in India by Shell. Meanwhile, SOFC manufacturing scale-ups are progressing with Doosan (ahead) and Bosch (behind) in implementing volume manufacturing. Outlook: An FY revenue guidance range of £50-60m, based on contracts secured to date, is reiterated. Moreover, management is implementing a cost rationalisation that will reduce overall expenditure by c.15%. Estimates: We upgrade FY revenue to £55m, in-line with the reiterated guidance and beyond, reflecting recent momentum. Our FY24/25/26E adj. EBITDA rise from -£38m/-£29m/-£5m to -£24m/-£20m/+£4m (see overleaf). Our view: We believe the market has missed how much progress Ceres has made of late. SOEC commercial acceleration and cost restructuring flagged in today’s results are encouraging. Interest rate moderation, political stability, and increased focus on energy security also provide a more supportive macro backdrop. We reiterate our Buy recommendation, leaving outer year assumptions and therefore our DCF-derived TP unchanged.
We estimate this deal is worth approximately £5m in licensing revenue to Ceres Power, spread over three years. Once products are commercialised Ceres should make royalty income both from the systems Thermax sells and the stack it buys from the stack manufacturing licensee. We reiterate Buy, TP 550p.
Ceres’ strong deal momentum in FY24 continued yesterday with the announcement of a new solid oxide electrolysis cell (SOEC) systems licence with Thermax, a leading provider of energy and environment solutions in India, which is targeting 5 million tonnes of green hydrogen production by 2030. Despite only entering the electrolyser market in 2021, Ceres has made solid progress and this, its third SOEC deal in just 9 months, provides yet another proof point for its SOEC technology. Ceres remains a high-quality and differentiated play in the UK New Energy & Clean Tech sector, and we reiterate our BUY and 650p TP.
Entry into the fast-growing Indian Market Ceres has signed a strategically important solid oxide electrolysis cell (SOEC) systems licence with Thermax. Thermax, listed and based in India with a market cap of 518bn INR (c£4.7bn), is one of the largest process equipment manufacturers with an extensive industrial portfolio providing clean air, clean energy, clean water, and chemical solutions. This is a non-exclusive global licence agreement to develop Cere’s SOEC system technology, including designs for electrolyser modular systems that will be manufactured and sold by Thermax and provide an entry point into the fast-growing Indian market. It will accelerate system development ready for commercial use within the hard-to-abate green ammonia, petrochemical and steel industries in India and other territories. Market Importance India is currently the world’s third-largest economy in terms of energy needs, spending $185bn on imported energy in 2022 according to WEF data. In 2022, the Indian government launched the National Green Hydrogen Mission providing $2.3bn in incentive funding to target production of 5m tonnes per annum of green hydrogen by 2030. This will be used to meet both India’s energy security needs and to decarbonise hard-to-abate sectors on the path to net zero for 2070. Estimates/ view: The agreement includes licence fees and product royalties. No numbers were disclosed in the statement, therefore we make no changes to estimates; however, we are encouraged by the news which should stimulate market pull. An upfront system license fee is a fraction of a manufacturing licence of which two were signed this year. This news shows momentum and improves outer year prospects. Next catalyst: H1 results 27 September.
He was most recently CFO and a board director of Oxford BioMedica (£349m market cap), an advanced therapies innovator for seven years, during which time revenues grew more than five-fold to over £100m. We maintain our Buy recommendation and 550p TP.
We upgrade our forecasts to reflect the revenue from this new licencing deal. We increase our TP from 500p to 550p and maintain our Buy recommendation.
Ceres confirms that Denso is a world-class OEM partner with the scale, expertise and resource to manufacture advanced equipment for the growing green hydrogen sectors. This agreement was originally announced on 22 July 2024, although at that time the partner was not named.
Ceres has provided further information on its long-term licence agreement announced last month and has confirmed it will be partnering with Denso Corporation. Denso is a Fortune 500 company focused on advanced mobility, headquartered in Japan, and a global company with over 160,000 employees in 35 countries worldwide. The deal marks another significant milestone for Ceres and follows on from the Delta collaboration announced earlier, in January 2024, securing another world-class OEM partner for the growing green hydrogen sector. Denso partnership a further endorsement of Ceres’ world leading technology The agreement provides future revenues from licence fees, engineering services and hardware over multiple years, similar to the profile of previous OEM licences. Additionally, the agreement also provides the opportunity for additional revenue from royalty payments to Ceres on future commercial production and sale of SOEC equipment to end customers by the partner. Denso to support Japan’s hydrogen and decarbonisation ambitions Japan imports c.90% of its energy supply (with fossil fuels making up a large share of the energy mix) and the country is looking to invest across the energy supply chain to improve energy security. Japan is expected to invest 15 trillion yen over the next 15 years across hydrogen sectors. As part of its strategy there are specific references to hydrogen and the hard-to-abate sectors, including steel, ammonia and synthetic fuel production, where excess heat can be coupled with Ceres’ best-in-class SOEC to drive potential efficiency gains and competitive advantages. The partnership with Ceres is expected to allow Denso to leverage its expertise of system control and thermal management that it has built in automotive system development to develop technology in the fields of hydrogen production. This partnership will enable Denso to produce Ceres’ current and future generations of stack technology under license, in line with its aim to establish a hydrogen supply chain. We highlight that Denso and JERA (Japan’s largest power generation company) yesterday announced a collaboration to develop advanced hydrogen generation technology, utilising SOEC technology with waste heat recovery, and will undergo a joint demonstration testing, utilising a 200kW module at a JERA thermal power plant. As part of its JERA Zero CO2 Emissions 2050 goal, JERA is working to establish a hydrogen and ammonia supply chain to achieve net-zero CO2 emissions across both its domestic and international operations by 2050.
Ceres has again demonstrated the strong momentum in the business with another licence deal secured with an AsiaPac OEM. This follows the Delta deal announced only back in January. As a result, FY24 revenue guidance has increased to £50-60m (from £40-50m). We update forecasts with FY24E revenue increasing to £56m (£44m). Ceres remains a high-quality and differentiated play in the UK New Energy & Clean Tech sector, but the share price performance (-42% over 12M) fails to reflect substantial recent developments. We reiterate our BUY with a new 650p TP (610p).
New Licensee A Multiple Positive, Trading/Guide also Beat/Raise A new license is significant in multiple ways – validating the technology (notably this is specifically a SOEC electrolysis license, versus Bosch and Doosan for SOFC and Delta for SOFC/SOEC – confirming commercial traction for the newer application of SO tech), diversifying revenue/reducing risk, bringing in more high margin revenue and hence also reducing cash burn and refinancing risk, all before any added value from future (likely three-four years out) royalties on product sales. After a hiatus in new licenses during 2022 and 2023, with long-time partners Doosan and Bosch to begin production and sales in 2025, and with some Chinese deal with Weichai still possible (after three-way plans with Bosch petered out earlier this year) the licensing picture/investment case is brighter than for some years. Meanwhile the trading update is positive, likewise the FY guide (although consensus changes will likely await more details next month and 1H numbers in September) – share price reaction should be significantly positive today. New (4th) License – for SOEC, Global OEM AsPac HQ named next month Ceres has announced a new (fourth) licensee – a ‘global OEM headquartered in Asia-Pacific’ for its SOEC technology – as yet unnamed at the request of the partner, but with details to be released early next month. The licensee is of a similar form (upfront licensee fee, engineering and supply revenues, royalties on future sales) as for other licensees – as a note, Delta, the Taiwanese licensee announced in January, came with ~£43m of licensee fees, half recognised in FY24. Positive 1H24 Update (revenues, GM, cash all beat) with FY raise Ceres has also announced a 1H trading update to June, with revenues expected to be £27-29m more than double 1H23’s £12m and vs VA consensus of £21m. Gross Margins are expected to be 75%-80% (1H23 62% and VA consensus 61%). Cash at end June £126m (£140m at end FY23) so a burn of £14m down from £21m in 1H23 and showing the reduced cash burn that has been guided for FY24 vs FY23 (although the burn in 2H24 may be larger than 1H due to payment timing). FY revenue guidance has been raised to £50-60m – previously the group had guided for existing licensees (i.e. without new deals) to at least double from FY23’s £21m – VA consensus is £47m, so the guidance represents around a ~17% raise at the mid-point, with GM and cash also trending better than expected.
Ceres has increased FY24 revenue guidance as a result of the new licensing agreement, to £50m-£60m (our current forecast is £47.5m). Revenue for 1H24 is guided to be in the range of £27-29m (c.2x the 1H23 revenue of £11.7m). Gross margin in 1H24 is guided to increase to around 75-80%.
Ceres has signed a global long-term licence agreement for its SOEC technology with a global original equipment manufacturer (OEM) headquartered in the Asia Pacific region. This marks another significant milestone for the business and follows the Delta collaboration announced in January 2024. Alongside this announcement, a brief trading update signals strong business momentum and, importantly, Ceres has upgraded revenue guidance for FY24 to £50-60m. At the partner’s request, further details are not expected to be disclosed until early August. Another licence partner and the first sole SOEC partnership – further endorsement of Ceres’ world leading technology Ceres has announced a long-term licence agreement with an OEM, headquartered in the Asia Pacific region, with further details to be provided in August. The agreement secures another partner for Ceres with the scale, expertise and resource to manufacture advanced equipment for the growing green hydrogen sector. The agreement provides future revenues from licence fees, engineering services and hardware over multiple years, similar to the profile of previous OEM licences. Additionally, the agreement also presents the opportunity for additional revenue from royalty payments to Ceres on future commercial production and the sale of SOEC equipment to end customers by the partner. Strong business momentum and revenue guidance upgrade Momentum in the business is strong with today’s announcement following the Delta collaboration announced earlier this year. Subsequently, the company has increased FY24 guidance to £50-60m based on the contracts secured to date. Revenue in H1 is expected to be in the range of £27-29m (H1 23: c.£11.7m), more than double the revenue in H1 23. Gross margins in the half year increased to around 75-80% driven by the revenue mix (H1 23: c.62%). Cash and short-term investments were c.£126m at H1 24 (FY23 c.£140m). Corresponding cash outflow of c.£14m in H1 24 represents a significant reduction compared to c.£21m in H1 23.
We see this follow-up contract as a strong endorsement of Ceres’ technology. Shell and Ceres’ cooperation in the design of a 10MW SOEC electrolyser module is to target large-scale industrial applications such as synthetic fuels, ammonia and green steel. We reiterate Buy, TP 500p.
Overall, we remain positive on Ceres Power. The company has world-class licensing partners in Bosch (SOFC), Dosan (SOFC) and Delta Electronics (SOFC and SOEC), together with SOEC testing partnerships with Shell and Bosch/Linde. The company additionally maintains that its ‘hopper’ of new potential partnerships is robust.
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.
2023 was a challenging year for Ceres, particularly as it became clear the 3-way China JV with Bosch and Doosan would not be completed as originally planned. However, in our view, despite this, the investment case has only strengthened, with January’s Delta deal not only validating the Solid Oxide Electrolysis (SOEC) strategy, but also providing further evidence of Ceres’ core technology strength, enabling its partners a quick, reduced-risk route for locally manufacturing systems for clean power and fuel generation. However, the share price is now 10% lower than it was before the Delta deal was announced, which we think is unjustified. In this note we update forecasts for the recent FY23A results and despite downgrades to short-term revenue forecasts, we still expect FY24E revenues to double. Furthermore, our improved cash forecasts prompt an increase in our DCF-derived TP to 610p (from 560p). We reiterate our BUY.
Ceres remains well positioned for growth with new partnerships as a result of its investment into SOEC for electrolysis. In addition, the company’s SOFC partners are continuing to scale manufacturing and build global supply chains which can service both its SOFC and SOEC markets. Ceres continues to target China, Europe, South Korea and the wider Asian markets given their standing as the largest markets for power generation – and regions with strong coverage with its existing SOFC licensees and further complemented by the recent addition of Delta. We reiterate our BUY rating and 500p/share TP.
For FY24 guidance, Ceres expects “to approximately double revenues from existing partnerships compared to 2023”, giving FY24 ‘baseline’ revenue of c.£45m. In January, management said it was confident of signing another license deal before YE24. For now, we are not changing forecasts. We maintain our Buy recommendation and 550p TP.
FY23 Financials in line – Numbers were largely pre-guided and in line with expectations. Revenue in the period was £22.3m and gross profit £13.6m, giving a gross profit margin of 61%. Importantly, the balance sheet remains robust as the company continues to invest across its business, with c.£140m of net cash at year end. R&D investment continues in line with its strategy to drive innovation and commercial acceleration in SOEC, with a c.11% increase to c.£54m in the period. SOEC commercialisation accelerating – The electrolysis programme is progressing well. Ceres’ 1MW scale electrolyser demonstrator successfully completed testing in Germany and has arrived at partner Shell’s R&D centre in Bangalore, India. The team is now focused on developing the next SOEC concept, a 4-5MW modularised system that would facilitate larger scale installations and, we believe, should help commercial discussions and entice further pipeline progression for new licence partners. Partners scaling to manufacture – Ceres’ SOFC partners are continuing to scale manufacturing and build global supply chains which can service both the SOFC and SOEC markets. Doosan’s 50MW stack factory in South Korea has completed factory acceptance testing and machine installation, with commissioning on track to complete in H2 24 and first production of SOFC systems and royalties to Ceres to follow in 2025. We highlight that initial production by Delta is also expected to start by the end of 2026. Valuation – We update numbers for FY23 and make some changes to our model but note that our valuation and 765p TP remain unchanged. Buy.
Our discussion takes us around the world looking at hydrogen subsidy schemes, FIDs taken and developments in newer markets, like India and Taiwan, where Ceres has been cultivating an active presence. We also consider the company’s future prospects in China.
This collaboration brings together the skillsets of Ceres, a leader in solid oxide electrolysers and AtkinsRéalis a company with global expertise and capabilities in hydrogen across the full value chain, from production and storage to distribution and utilisation.
FY23 trading update showed headline estimates largely in line, with a strong net cash position (“approximately £140m”). Frustratingly, the group announced that the proposed China JV (with Bosch and Weichai) is now “unlikely to proceed in its current form”. An immediate implication, in our view, is the likely loss of the associated licence revenue that would have been due to Ceres in FY24 and FY25. We believe that this de-emphasis of the China JV now focus’ attention on Ceres’ pipeline of other opportunities – a pipeline we believe to be significant as demonstrated by the recent licence deal with Delta Electronics. On adjusting for the China JV news, we lower our FY24/FY25 estimates and our TP to 500p from 570p. We retain our BUY rating.
Net Impact of Weeks News Skews Positive Today’s weakness (down ~20% at 200p as we write) comes after a strong run since the Delta win last week – in coming days estimates will integrate mixed news: positive cash, burn and GMs, plus the Delta license win (SOFC & SOEC) versus the delay to Bosch/Doosan royalties (small) and removal of China (for the moment). Net we see the risk/reward skewing positive – more secure/valuable partners, stronger BS, validation and options for upside (China/new licenses) in 24.Since the Delta win last week since the stock was up 51% at close last night (still down 28% since beginning 23, 84% down from peak and 24% down since our initiation in April 23). Today’s scheduled FY23 trading update, finals March 20th. Financials: Revs in line, GM, Cash & Burn All Beat Ceres expects £21-22m revs, at the midpoint down 3% vs. FY22 and a 2% beat versus Gby ests but MSD below VA/Factset consensus around £22-23m. More significantly, YE cash was £140m, versus £182m at end 2022, a beat vs, our and consensus ests around £130m. Burn of £42m, reduced from £62m in 2022 as guided, is 14% better than Gby ests of £49m and consensus around £50m. GMs of 60% (59%) beat consensus/Gby at around 50% and reflect the license model. Bosch & Doosan Progress, but Royalties pushed back several months For existing licensees, Bosch & Doosan, whose plants are being completed in 24, commercial sales and thus royalties are now expected in 2025 not the current year. Our estimates had been for £2m of royalties in 2024 and £12m in 2025 from these two partners, and expectations likely also assumed production only in the final quarter, so the delay is modest (LSD of consensus revenue in 2024).
Cash and equivalents at 31 December were c.£140m, materially higher than our forecast of £117m. The Delta licensing deal announced last week, has recently put momentum back into the shares. Management has expressed confidence in the potential for signing another licence deal before this YE. We maintain our Buy recommendation and TP of 550p.
Strong cash position - FY23 revenue is expected to be in line with previous guidance at c.£21-22m at a c.60% gross margin. Ceres’ balance sheet remains robust: with cash and investments of c.£140m at year-end, ahead of estimates largely driven by positive working capital movements. China JV unlikely to complete in current form – Ceres has announced that the planned JV, announced two years ago with Bosch and Weichai, is unlikely to go ahead in its current form. The company highlights that it maintains a strong relationship with both its strategic partners, and it is evaluating options with Weichai as to how it can address the China market. Updated forecasts - We update numbers accordingly, removing China JV licence revenue and future dividends from the JV from our model. Alongside this we make adjustments to the speed of growth of our royalty revenues but note this is more a timing impact and thus forecasts shift to the right and the backdrop remains very constructive for SOFC and SOEC. Subsequently, while our TP reduces to 765p, we reiterate our Buy recommendation. Upside to numbers remains - The Delta deal demonstrates the speed at which those looking to gain access to Ceres’ world leading technology can transact as they look to gain exposure to the green hydrogen market for fuel cells and electrolysers. Ceres’ tech and licence model is attractive for partners looking for flexibility and looking to accelerate their exposure in the energy transition. The associated licence payments from new partners are significantly high margin and can quickly bolster revenue and cash positions, and web note Ceres has a growing pipeline of potential partners.
Ceres’ licence deal with Delta Electronics last week was not just financially significant with this representing revenues of c£43m (excluding royalties), it was also its first dual manufacturing licence and as such its first in hydrogen. Importantly, the deal removes any uncertainty a delay to the signing of the 3-way China JV suggested around Ceres’ technology and ability to sign new licences. Despite differing end applications, further partner progress and scale in Asia puts pressure on Weichai, in our view, and likely speeds up a conclusion to negotiations. Indeed, we would argue that this deal decreases the relevance of the 3-way JV entirely. We prudently leave our forecasts unchanged until we learn more on the deal capacity, also cognisant of Wednesday’s year end trading update. Despite a 35% increase since the deal, the share price still does not yet reflect the scale now being achieved with three world-class partners in some of the most advanced geographies for clean technology adoption. We reiterate our BUY and 560p TP.
The licence agreement with Delta Electronics is significantly positive for Ceres as it a) gives strong revenue visibility for 40% of consensus FY24E revenue, b) is Ceres’ first major licence announcement since 2020 c) is Ceres’ first dual licence, endorsing the technology and the strategy d) adds another sizeable high-quality customer, widening the customer base. We believe the deal goes some way to assuaging market after mgmt.’s materially downgraded FY23 revenue at the end of 2023. That d/grade cuts our FY23E revenue -39% with our FY24E lifting 17%. These changes, and shifting to the FY24E cash balance in our TP calculation, lowers our TP to 570p from 800p, implying c.175% upside from the current share price. We retain our BUY rating.
After a torrid 2023, during which Ceres lost 51% of its value, we see 2024 – aided by this Delta deal – starting very well, in what is expected to be a record revenue (£59m) and gross profit (£41m) year, helping Ceres regain momentum. We also believe there is potential for a further licensing deal to be executed later in the year. We maintain our Buy rating and increase our TP from 475p to 550p.
Positive News vs Price Falls and Market Scepticism Against further weakness in its share price to multi-year lows and down ~90% from the 2021 peak, with the market increasingly doubtful that Ceres could find new licensees for either its existing solid oxide fuel cell (SOFC) or new SOEC (electrolysis cell to make green hydrogen) the news is likely to prompt a double digit share price rise in our view. It is significantly positive in financial, cashflow and technological validation terms, reducing risk through diversification of revenue sources and regional exposure. Buy. There is a call at 0830, another at 1400 and Ceres is due to give a YE FY23 trading update on Wednesday (likely overshadowed by today’s news, but which the market increasingly expected another warning/delay). New Licensee for SOEC and SOFC: Taiwanese Delta CWR and Delta have announced “Delta Electronics, Inc. ("Delta"), a global leader in power and thermal management and provider of IoT-based Smart Green Solutions, today announced the signing of a long-term collaboration agreement, which includes technology transfer and licensing, with Ceres Power … to access Ceres' Hydrogen energy stack technology portfolio for approx. GBP43 million. Ceres is a global leader in solid oxide fuel cell and electrochemical technology. Through this partnership, Delta expects to integrate Ceres' energy stack technology with its own industry-leading power electronics and thermal management technologies to develop solid oxide fuel cell (SOFC) and solid oxide electrolysis cell (SOEC) systems for hydrogen energy applications, with production expected to start by the end of 2026, with strong ambition for future scale-up. These SOFC and SOEC systems are expected to enhance the capabilities of Delta's green solutions for a myriad of sectors, such as, chemicals, energy, transportation, steel and moreCWR and Delta have announced “Delta Electronics, Inc. ("Delta"), a global leader in power and thermal management and provider of IoT-based Smart Green Solutions, today announced the signing of a long-term collaboration agreement, which includes technology transfer and licensing, with Ceres Power … to access Ceres' Hydrogen energy stack technology portfolio for approx. GBP43 million. Ceres is a global leader in solid oxide fuel cell and electrochemical technology. Through this partnership, Delta expects to integrate Ceres' energy stack technology with its own industry-leading power electronics and thermal management technologies to develop solid oxide fuel cell (SOFC) and solid oxide electrolysis cell (SOEC) systems for hydrogen energy applications, with production expected to start by the end of 2026, with strong ambition for future scale-up. These SOFC and SOEC systems are expected to enhance the capabilities of Delta's green solutions for a myriad of sectors, … chemicals, energy, transportation, steel. Multiple Positives: New, SOEC, Financial Gains, Risk Reduced The news could hardly have been more positive – the licensee is new (not an extension into SOEC by an existing SOFC licensee), it is SOEC and SOFC – launching the former as the first licensee of the hydrogen producing tech and rejuvenating the latter (no new SOFC licensees for over 2 years and the third Chinese deal dragging interminably), it brings significant cashflow at high GM (typically over 90% for license fees, with additional hardware sales likely), and the new partner is large (see below) and credible, taking CWR into a new region (Asia ex China) and industry/use case..
Factory construction is set to start from 2024 and the initial production by Delta is expected to start by the end of 2026. We believe today’s announcement is highly positive for Ceres Power, after an extended period without new licensing news flow. We will be reviewing and updating our forecasts shortly. We maintain our Buy recommendation and 475p TP.
SOEC & SOFC collaboration - The agreement includes c.£43m of revenue to Ceres through technology transfer, development licence fees and engineering services, and half is expected to be recognised in FY24. Similar to its other licence partnerships, the agreement also includes royalty payments to Ceres dependent on future commercial production and sales. We also highlight potential for additional revenue from supplying stacks over the three-year development period. Collaboration plans include a technology introduction and factory construction that begins in 2024, with initial production expected by the end of 2026 and potential royalties thereafter. Delta plans to integrate Ceres’ leading stack technology with its own industry-leading technologies to develop fuel cell and electrolysis systems for hydrogen applications. Targeting customers globally across multiple sectors in chemicals, energy, transportation, steel and other industries, Delta specifically highlights the capability of SOFC in micro-grid applications and distributed power systems, such as data centres, semiconductor production lines, and advanced manufacturing where Delta operates. SOEC systems will also play a key role in the chemical, utilities, and steel industries as industrial processes begin to adopt green hydrogen to decarbonise. We highlight that our FY24E numbers already includes a new licence partner as well as China JV licence revenue (c.£30m). The Delta collaboration therefore demonstrates significant progress and a key milestone and endorsement of the SOEC business. We highlight the potential upside to our long-term forecasts from Delta royalties but await further details on Delta’s production capacity of the factory and strategy before adjusting numbers.
We remain positive overall on Ceres, especially in terms of its SOFC and SOEC technologies and world-class partnerships. However, in recognition that licensing agreements can take longer than expected to conclude, and due to the lack of any new licencing agreements for over 18 months, we reduce our near-term expectations for revenue and profitability and our target price.
Last week, Ceres revised its revenue guidance, which was dependent on securing a new licence partner by YE and so we remove £13.5m of high margin revenue from our base case FY23E forecasts. With limited sensitivity to near-term forecasts, our base case valuation model generates a new 620p TP (640p) and we reiterate our BUY recommendation. One risk does remain (the 3-way China JV not being signed), but as we recently discussed, we believe the impact to be limited and importantly would not suggest a wider issue with the technology or business’ ability to scale through world class partners like Bosch and Doosan. Our base case remains that the JV is signed and with the shares -50% YTD, we think the shares have been oversold on this risk and welcome the brave to reassess the core long-term investment case. Base case: Our updated base case DCF valuation methodology continues to assume that the 3-way China JV does eventually happen and continues to capture only four royalty programmes with Bosch, Doosan and Weichai with royalty revenue growing from £11.1m in FY25E to more than £400m by FY40E. Our model is more sensitive to long-term royalty revenues, so the FY23E revenue downgrade has limited impact on valuation (new 620p TP from 640p). Bear case: Our unchanged bear case model continues to show the impact to the Group valuation of the 3-way China JV not occurring to be limited with an unchanged DCF derived valuation of 575p/share. Clearly with this yet to be signed, there is still a risk to forecasts, but importantly, as we discussed recently, in our note What’s the worst that could happen?, we think the reason would be a geopolitical. Ultimately, this scenario would not change the underlying value created through extensive IP, pending royalty revenue, and world-class partners. The most important, in our view, are Bosch and Doosan, both of which remain on track to start scale manufacture next year. Hydrogen largely upside: We would also highlight that our current longer-term royalty forecasts are highly conservative and assume only one new licence partner, with no associated royalty revenue, is secured in solid oxide electrolysis (SOEC). We expect 2024 to be an important year for news in the Hydrogen business as the first demonstrator will start providing data to substantiate performance, cost, and operational functionality at Shell’s R&D Centre in Bangalore, India, which is a key catalyst in being able to secure new licensing agreements. See our note New market, same old ingredients for more on Ceres’ Hydrogen business.
The company says it remains confident of securing a new commercial partnership in the coming months and will provide a further trading update in January. We put our recommendation and target price under review and will publish our updated forecasts and TP shortly.
Another Delay, Another Warning At its 1H23 results in September, the hit from the further delay to the long-awaited Chinese deals (kicked into FY24) was partly offset by the expectation that one of a number of new licenses would be signed. This has now also been pushed into FY24. China and other new licenses are still seen by management as likely to happen but the erosion of confidence is significant, even after a 46% YTD fall. FY24 assumes ever greater importance Next year should mark the beginning of production at the two existing SOFC (fuel cell) licensees, Bosch and Doosan, and the beginning of associated royalties late in the year – now key to credibility. FY24 now also appears pivotal for China, and for new SOFC and SOEC licenses. No progress and dwindling cash twelve months hence would look perilous. Estimates Cut, Discount Rate to 20%, PT to 210p (492p) We reduce our FY23 revenues per the warning with only the partial relief that no cash income has been assumed: free cash out remains around £50m and year end net cash £133m. We choose not to simply add the delayed hoped-for licence revs to FY24 but rather remove the cash associated. Another painful reduction to our PT results: we also raise our WACC to 20% (12%) to reflect higher risk, and yet the existing licensees, still adequate funding and promising initial performance of SOEC all support a continued Buy rating esp. after a further likely fall today. Risks focus on the need to get at least one licence across the line in 2024.
Licence partner progression, but revenue recognition delay – Importantly, Ceres remains confident of securing a new commercial partnership in the coming months and will provide a year-end trading update in January which should provide further details. Given today’s announcement, the company has updated FY revenue guidance to approximately £20-21m, roughly in line with FY22 revenue (c.£22m). SOEC progress continues – Ceres is ramping up the SOEC business and we believe it could be a game changer for the company and has the potential to grow to become the largest part of the business in the second half of the decade. Deployment of the 1MW demonstrator to Bangalore with Shell is expected later this year, and the demonstrator has already achieved hydrogen production from the testing facility in AVL in Germany. The Ceres team is now working on the next SOEC product concept for a 2-3MW modularised system, which would facilitate larger-scale installations. This is a key next step for development and demonstrates progress on the company’s electrolyser strategy/roadmap. Valuation and numbers update – We adjust forecasts in line with updated revenue guidance and note this also impacts our FY23E net cash estimate. We leave our revenue estimates for FY24E and beyond unchanged assuming a lag effect on further licence revenue recognition with no major changes in our view on cashflow projections and subsequent cash positions, other than for the FY23E revenue adjustment. Overall, there is a minor valuation impact and our TP drops to 1015p. We reiterate our Buy.
Ceres is building a second 1MW SOEC electrolyser unit, which it expects to be deployed next year on a trial for Linde and Bosch in Germany, as well as working with partners on feasibility studies focusing on designing the optimum architecture for 100MW+ scale SOEC electrolyser systems. We reiterate our Buy recommendation and 650p TP.
We assume Ceres’ share price performance over October (-37%) reflects growing doubts of securing a new licensing deal to achieve FY23 revenue expectations. There is also the perceived greater concern that the 3-way China JV with Weichai and Bosch will be pulled. In this note we consider the impact of both events not being achieved as a worst-case scenario and show that significant upside remains. We also provide our thoughts to the key questions that would be asked if this were to happen. Ultimately, this scenario does not change the underlying value created through extensive IP, pending (initial, but not insignificant) royalty revenue, and world-class partners. The most important are Bosch and Doosan, both of which remain on track to start scale manufacture next year. Our base case continues to assume that both events do occur but with slight forecast changes following the recent interim results and a further, slight increase in WACC, we now value the shares at 640p (820p).
The marine sector is seen as one of the hardest industries to decarbonise. The system is to undergo demonstration and testing during 2024 in Stord, Norway, before being transferred to a vessel for further testing. We maintain our Buy recommendation and 650p target price.
Buy-rated Ceres Power presented its 1H23 results, highlighting a revenue beat and improved y/y gross profit performance. We were encouraged by the confirmation that Doosan’s 50MW factory in S. Korea is on target to commence production of fuel cells under a Ceres technology licence in 2H24. Ceres also highlighted accelerating momentum in the development of its electrolysis business which it said is likely to be larger than the fuel cell business – a scenario that in our view is not fully priced into consensus valuation. Ceres re-iterated its expectation that the China JVs with Weichai/Bosch will be officially confirmed in 2024. Gross margins should lift materially into FY24 driven by greater share of licence fee revenue. BUY, TP 800p.
The company reported strong momentum in the construction of manufacturing facilities for key licensing partners Bosch and Doosan. It also made important progress in SOEC, building MW-scale SOEC electrolysers and readying them for testing by Shell and Bosch/Linde.
H1 in line with previous guidance - The July update guided on the key financial numbers so there are no major surprises. Revenue in the period was £11.3m and gross profit was £6.9m, giving a gross profit margin of c.61%. Importantly, the balance sheet remains robust with cash and investments at c.£161.2m at the end of the period. The “investment in the future” (R&D and capex/development costs) increased by 19% to £30.6m. China JV - awaiting further updates: We remind that all parties remain committed to the deal and the structure of the JV has been agreed. The delay has been well flagged and, in July, the company shifted revenue recognition guidance of c.£30m to FY24 and this is reiterated. Partners approaching first production and tech advancements – Building construction of Doosan’s 50MW factory in South Korea is now complete. All machinery and processes have undergone factory acceptance testing (FAT), and it is on track for installation and commissioning to achieve first production next year. Ceres is delivering on its technology roadmap and its second-generation stacks passed Critical Design Review (a crucial point), potentially offering improvements in performance for existing and future SOFC partners. SOEC delivering to plan - Deployment of the 1MW demonstrator to Shell is expected later this year in India, and is a key milestone for the SOEC business. It is currently undergoing commissioning and initial testing at AVL in Germany, in preparation for deployment later in the year. The Ceres team is now working on the next SOEC product concept for a 2-3MW modularised system, which would facilitate larger scale installations; this is a key next step for development and demonstrates progress on the company’s electrolyser strategy/roadmap.
We update estimates and re-iterate our positive thesis following the 1H23 trading update that had new guidance. Company now believes the 3-way JV agreement with Weichai and Bosch will not be signed in time to book the associated upfront licence fee in FY23 and instead now guiding to FY24 and effectively guiding consensus FY23 revenue down by 30% to c.£34m. Liberum FY23E unchanged at £33.5m (as was not factoring in JV licence fee in FY23) and our FY23 gross margin assumption of 69% unchanged. Our FY24E revenue rises £18m to £50.6m on our view on trajectory of licence fees with a £12.6m rise in FY24E gross profit to £34.9m. Shares now down 25% from recent 430p peak in July and we believe the JV licence revenue deferral is now in the price. We see Ceres well-positioned ahead of company-defining royalty payments from Bosch and Doosan set to commence in 2024. Bosch’s receipt of EU funding to develop power supply systems based on solid oxide fuel cell technology potentially significant for Ceres. With a higher discount rate offsetting the lift to our FY24E estimates - we maintain our TP at 800p and BUY rating.
Ceres’ success to date is in part a result of its ability to expand its partnership network and diversify into new markets, which this week’s trading update again demonstrated. Despite rolling forward the FY23E licence fee revenue relating to the China JVs to FY24E, the full effect has been partially offset by management’s expectation to secure a new partnership deal by year end. In terms of the China JVs, despite the impact to this year’s forecasts, we view Bosch and Weichai reconfirming their commitment and targeting signature this year as extremely positive. With multiple short-term catalysts and significant long-term potential, we reiterate our BUY recommendation with an unchanged 820p TP.
Forecasted China JVs revenue (expected at c.£30m) will move into 2024. FY23 revenue is expected to be offset partially by anticipation of higher licence fee revenue from new contract wins this year. The balance sheet remains strong with cash and equivalents of £162m as at 30 June 2023.
On Friday, Ceres hosted a teach-in on its solid oxide electrolyser (SOEC) technology. We were once again impressed by the experience of the team and the quality of the approach, which brought success in its solid oxide fuel cell (SOFC) business, being applied to commercialise the technology, and establish a successful Hydrogen business. With a powerful combination of a high-performing, highly manufacturable technology, an unrelenting emphasis on data and a leadership team focused on expanding its partnership network by location, quantity, and scale, Ceres offers a unique and compelling investment. In our view, the delay to the China 3-way JV with its two strategic investors, that have a vested interest in the business’ success, continues to distract the market from the value created within the business to date across both Hydrogen and Power. The share price also ignores the potential for other partnership announcements in the short-term, particularly in the US, which we think could be imminent, based on comments made at the recent tech teach-in.
Last Friday, Ceres hosted a tech teach-in for analysts and a deep dive into its market-leading technology, with a focus around the durability and robustness of its product offering. It also highlighted the significant opportunity for Solid Oxide efficiency gains and its potential key role in the future green hydrogen market, specifically in industries/sectors with excess heat. Solid Oxide efficiency gains – Potential for significant upstream capex and opex savings Ceres highlighted the potential significant efficiency gains from SOEC at the mega project level of 1mt of green H2. Indicative 2030 project costs target SOEC system efficiency of 37kWh/kg compared to the 50kWh/kg of low temperature electrolysers. This corresponds to a requirement of 4.7GW of electrolyser capacity (compared to 6.3GW), 8.9GW of renewables capacity (compared to 12GW) and $2bn of electricity costs at $55/MWh (compared to $2.75bn) for the project. Overall, this represents a $6.8bn capex saving and $0.75bn opex saving (26% saving per year - $14bn over a 20-year project lifetime). The company also highlighted that it projects the LCOH at this level could be firmly below $3/kg, a very important level, which would allow it to compete with grey hydrogen without subsidies, and economics would be lucrative with subsidies like the IRA. Market leading Solid Oxide technology There are two unique features of Ceres’ technology that makes its product extremely durable and robust: 1) The use of Ceria as the electrolyte; and 2) it is metal-supported and 80% of the stack comes from low-cost metals. There is no use of PGM’s. Ceres has committed £100m for the development of its SOEC technology. Its first 100kW electrolyser module is currently on test and initial results are providing confidence that this technology can deliver green hydrogen at <40kWh/kg. Ceres has significantly expanded its commercial team and there is further scope to develop existing relationships with partners and to seek new partnerships. The recent partnership with Bosch and Linde shows the exciting growth potential of the SOEC business. Shell partnership a route to scale electrolysis Graeme Yardley, Supply Chain Leader - Renewable Energy Solutions at Shell, presented on the day and outlined Shell’s commitment to the hydrogen economy. Positively, he reiterated the importance of the strategic partnership with Ceres and the vision that the partnership extends beyond the 1MW demonstrator, with a focus on developing a pathway to scale >100MW.
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In our view, Ceres Power is a “must-have” ticket to the energy transition within our coverage. Ceres has both fuel cell (power) and electrolyser (hydrogen production) technology exposure. Its solid oxide technology is gaining greater commercial traction, and its commercial partners are world-class operators in their industry niches. The company operates a capital-light, licensing model that delivers high margins, and is highly scalable relative to peers. Above all, Ceres, is just one year away from the major catalyst of receiving first royalty revenues from Bosch and Doosan who will both produce and ship fuel cells, at scale, under a Ceres licence. We forecast first electrolyser royalty revenue for Ceres in 2030. We initiate with a TP of 800p and a BUY rating.
Inflection point of the transition? Significant progress has been made to date; however, the easy work is now arguably done. A significant step-change is required to accelerate the energy transition. In large-scale transitions and at times of rapid rates of change, we tend to see common themes. At the start, we are usually underwhelmed as the transition begins. Then, following a lull, growth happens far quicker than initially expected. A prime example of this is the pace of wind and solar cost reduction over the past decade, and the same might now apply to the hydrogen economy, which could far exceed our expectations. This could make our original outlook assumptions for Ceres conservative. A blue-sky scenario, with modest tweaks to our growth assumptions, results in a c.40% increase in our valuation and target price of c.£17, which demonstrates the upside opportunity for Ceres as we reach the tipping point of the transition. Hydrogen, “Swiss Army Knife” of a decarbonising economy - The energy transition comprises of multiple transitions across the entire energy sphere, and hydrogen has a role to play in many sectors. We particularly highlight Ceres’ market-leading Solid Oxide tech, which could have an important role to play in certain hard-to-abate industries, such as steel, cement and industrial sectors with excess heat, which can be coupled with an SOEC system. Share price unreflective of progress - Ceres has made material progress over the past three years, securing Tier 1 partnerships with the likes of Bosch, Linde, Shell, Doosan and Weichai, and reinvigorating its strategy to capture the entire green hydrogen economy with its market-leading SOFC and SOEC technology. Its licencing and royalty model is one that can be quickly scaled with its partners, and there is a route to profitability within the next three years. However, the current share price does not reflect this dynamic, trading around levels at which Bosch invested in back in January 2020. Catalysts – Company Tech teach-in June 9th, China JV news.
Ceres Power Holdings plc ITM Power PLC
Following FY22 results, we roll forward forecasts to FY25E, where we include £15m of royalty revenue pa reflecting just two licensing deals with Doosan and Bosch in the Power business (SOFC) alone. With notable partners now secured in the Hydrogen business (SOEC), the timeframe to a licensing deal here is also now dramatically shortened, the impact of which is largely upside in our numbers. Furthermore, completion of the 3-way China JV in SOFC represents a near-term catalyst for an upgrade and will remove a key risk for the shares. Ceres remains a top pick and we view the recent weakness (-25% since the start of Mar’23), largely reflecting short-term delays to a complicated, but significant deal, as a buying opportunity.
FY22 was a year of tremendous progress for Ceres Power and we forecast significant growth potential in both SOFC fuel cell and SOEC electrolyser markets, supported by multiple world class partnerships, including with Bosch, Doosan, Weichai, Shell and Linde.
FY22 Financials in line – Numbers were largely pre-guided and in line with expectations from the January trading update. Revenue in the period was £22.1m and gross profit £13.1m, giving a gross profit margin of 59%. Importantly, the balance sheet remains robust as the company continues to invest across its business, with £182.3m of net cash at year end. R&D investment increased by 67% to £58m, with a significant increase in SOEC, in line with Ceres’ strategy to expand into electrolysis and green hydrogen. SOEC partnerships demonstrate material progress - Ceres recently announced that it has signed contracts with Bosch and Linde Engineering to start a collaboration to validate the performance, cost, and operational functionality of its SOEC technology. The company now has three significant Tier 1 partners in Bosch, Linde and Shell to push forward the demonstration of its SOEC technology. The demonstrator phase is an important step in validation of SOEC at a system level and should provide a platform for potential commercialisation at scale. Positively, its first 100kW electrolyser module is currently on test and initial results are promising, providing confidence that this technology can deliver green hydrogen at <40kWh/kg and reportedly c.25% higher efficiency than lower temperature technologies. China JV - awaiting further updates: We reiterate that all parties remain committed to the deal and the structure of the JV has been agreed. The delay is being caused by several commercial items needing more time to be finalised between Bosch and Weichai. This delay was well-flagged late last year and does not affect our current revenue assumptions/estimates. Valuation – We update numbers for FY22 and make some tweaks to our model, but note that our valuation and 1200p TP remains unchanged. Buy.
This morning Ceres announced a collaboration with Bosch and Linde Engineering to assess Ceres' solid oxide electrolysis (SOEC) technology to produce “lower-cost” hydrogen. Whilst this is not yet a Hydrogen licensing deal and will have a small impact on numbers initially, it is a very encouraging development for the Hydrogen business where management believe there to be a $06-1.1billion royalty opportunity. By combining Ceres' unique technology, Bosch's strength in scaled manufacturing and Linde Engineering's expertise in hydrogen production, processing, distribution and storage, Ceres aims to establish a partnership that can make its technology even more competitive and prepare it for mass market adoption at scale. Furthermore, we believe the partnership increases the competitive tension with Ceres’ other Hydrogen partner Shell and shortens the timeframe to a licensing deal in the Hydrogen business.
Today's announcement of a 1MW Bosch/Linde Engineering trial of Ceres' SEOC electrolyser system follows a similar 1MW electrolyser trial announced by Shell to be undertaken in India, starting later this year.
Ceres has announced that it has signed contracts, with Bosch and Linde Engineering, to start a collaboration to validate the performance, cost, and operational functionality of its SOEC technology. The company now has three significant partners, in Bosch, Linde and Shell, to push forward the demonstration of its SOEC technology. The demonstrators are an important step in validation of SOEC at a system level, and provide a platform for potential commercialisation. 1MW demonstrator with Bosch and Linde engineering Ceres has announced that it has signed contracts with Linde Engineering and Bosch, with a plan to prepare a two-year demonstration of a 1MW SOEC system, to be located at a Bosch site in Stuttgart, starting in 2024. The aim is to validate the performance, cost, and operational functionality of its SOEC technology. This is to showcase that the technology provides a highly efficient pathway to low-cost green hydrogen, which has a significant role to play in hard-to-abate industrial sectors. Linde Engineering is a world leader in industrial process engineering of chemical plants, with a global footprint in industrial facilities. Coupled with Bosch (an existing Ceres partner), which has significant expertise in product industrialisation and mass manufacturing, the companies are aiming to evaluate and qualify SOEC technology for large scale industrial applications. SOEC Business progressing Ceres has committed £100m for the development of its SOEC technology. Its first 100kW electrolyser module is currently on test and the initial results are providing confidence that this technology can deliver green hydrogen at <40kWh/kg, an important barrier, and at reportedly c.25% higher efficiency than lower temperature technologies. Ceres has significantly expanded its commercial team, and the partnership with Bosch and Linde shows the exciting growth potential of the SOEC business. Note deployment of the 1MW demonstrator to Shell is also expected later this year in India. For further insight, we highlight a short video on Ceres’ website where Jon Harman (Technology Delivery Director at Ceres) talks about Ceres’ hydrogen electrolysis technology programme - https://www.ceres.tech/media/jon-harman-technology-delivery-director-at-ceres-talks-soec/
At the event (11th International Conference of ICE Reliability), where the banner heading read “Commercialisation of the world’s first large power metal-supported SOFC product”, Weichai said it made “SOFC another major strategic pillar of Weichai’s diversified development of energy”.
We talk to the CEO about the drivers for adoption of Ceres’ technology, a landscape of lucrative subsidies for hydrogen technologies, the USP of Ceres’ technology, progress made by licensing partners, and the inflection point in terms of mass market commercialisation of Ceres’ products. Click on the image below to listen to our interview with Phil Caldwell, CEO.
Ceres has reported positive testing of a 100kW electrolyser module ahead of its intention to scale it up into a 1MW demonstrator. A 1MW unit is scheduled to be deployed to a Shell R&D centre in India later this year.
We are not enormously surprised that this deal is taking some time to finalise, given that it involves three parties (Ceres, Weichai and Bosch) and given that it involves large multi-application market opportunities in China.
Packing a punch in clean power and electrolyser efficiency Ceres is a leading solid oxide fuel cell (SOFC) and solid oxide electrolyser cell (SOEC) technology company with a unique, high performance and versatile cell technology called SteelCell. Power products incorporating this have demonstrated leading electrical efficiency of c.60%, and c.85% overall efficiency if using heat generated. Operating a partnering, technology transfer and licensing business model, Ceres has attracted major manufacturers of low/zero carbon decentralised power products, as well as heavy duty transportation applications. Ceres has also developed MW-scale electrolysers. We initiate with a Buy and a 650p TP. Nick.Walker@peelhunt.com 42-page note
Ceres’ interim results again demonstrate the attractiveness of a capital-light, licensing model with sector-leading gross margins of 55% despite lower, albeit in-line, revenues of £9.9m. However, the delay to the expected establishment of the three-way JV in China with Weichai and Bosch has unsurprisingly been the focus today. Given Ceres is somewhat protected from supply chain and inflationary pressures, compared to its manufacturing peers in the Clean Hydrogen and Fuel Cell sectors, by its licensing model, the relative underperformance and 34% fall in the share price over the last 6 months arguably has reflected some market concern of a possible delay to this JV, which would have been reasonable to assume given a lack of newsflow. However, despite associated licence fees rolling over from FY22E to FY23E, there is no change to the long-term investment case or timeline to recurring, high-margin royalty fees (FY24). Despite a reduced DCF-derived TP of 950p (from 1496p), we view the further 15% weakness today as a compelling buying opportunity.
The Weichai and Bosch SOFC JV is now in the final stages of preparing definite agreements. The complexity of the deal and multiple parties has extended the timeframe. CWR management are confident of signing in the coming months. Following regulatory clearance, which could take four to six months, JV formation is now expected in 1H23 and would trigger the full £30m licence fee to be recognised in 1H23 (previously £15m in 2H22E and £15m in 1H23E). The cash will be received in three tranches over the three years post JV formation. 1H outturn: The 28 July update gave the key financial numbers so there are no surprises. Revenue in the period was £9.9m and gross profit £5.3m, giving a gross profit margin of 55%. Importantly, cash burn is less than we previously expected, with £221.6m of net cash at 30 June. R&D investment increased 46%, in line with our FY22E estimate, with a significant step-up in SOEC. Enough cash to get to profitability: This is fundamental to our investment case; we are confident Ceres has sufficient cash to fund its product development and navigate to profitability in FY25E. Lower risk royalty model: A key differentiator to UK peers is Ceres’ royalty model. It is not trying to build its own manufacturing giga factories. It is not reliant on government grants and funding. Its key partners, especially Bosch in Europe, have the manufacturing know-how, available capital to scale-up, and access to plentiful government assistance. Coming out of its shell: The SOEC partnership with Shell is a key signal of the conventional energy industry’s increasing focus on how hydrogen can play its part in decarbonising the global energy system. FY24E forecasts remain unchanged: We continue to expect profitability in FY25E with near-term upside from further new licence fee agreements.
Shell orders a SOEC demonstrator Ceres Power has signed an agreement with Shell to provide a MW scale SOEC demonstrator in 2023. This starts a partnership between Shell and Ceres that aims to use SOEC technology to decarbonise hard-to-abate parts of the energy system. We see this as a major endorsement of SOEC technology from a major blue-chip energy company. We expect this agreement with Shell to be the first of several initial SOEC agreements to be finalised this year. It is a large initial step towards the Ceres’ business strategy for SOEC to provide a pathway to the commercialisation, and a levelised cost of hydrogen of $1.5/kg by 2025. The system will be installed at Shell’s R&D technology centre in Bangalore, India, where the hydrogen will be used in industrial processes on site. The testing programme is intended to run for at least three years. No agreement value given For commercial reasons and given the early stage of the agreement, Ceres has not indicated the potential value of this agreement or the price Shell may be paying for their demonstrator. We believe this second MW scale demonstrator will be built concurrently alongside the initial demonstrator currently being constructed by Ceres. We assume the costs incurred by Ceres as part of this partnership agreement will come from the £100m SOEC technology development funds. We leave our forecasts unchanged and see this agreement as underpinning our SOEC revenue contributions in outer years, which we believe are conservative. Hydrogen for Life event this Thursday Ceres CEO Phil Caudwell will be presenting at this event on Thursday 30th June at the London Science Museum. As well as being able to physically attend, there is also a Livestream (please register here).
CERES POWER HOLDINGS - Conviction BUY Top Picks | 2000P Bosch and Weichai Power preparing for an offer? Possible but not so easy Strategically, it would make sense for Bosch Is this the beginning of a quest for Solid Oxide technology ?
Technology & Business Services: This quarter we choose top picks in the Payment, IT Services and Energy transition sectors. Our Top picks are Edenred, Capgemini, Sopra Steria, Alfen, Ceres Power and Waga Energy. Edenred: 1/ dominant market share in employ
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Last Thursday, Ceres Power released FY21 results that were pleasantly a non-event with total income +44% to £31.7m and cash and investments of £250m both flagged at the January trading update. The 39% increase in gross profit was a highlight with a sector-leading gross margin of 66% underlining the strength of Ceres' model driven by IP licensing. We increase our FY22/23E revenue forecasts by 1/9% but increased cash outflow to pursue a high-growth strategy and take advantage of the Clean Hydrogen opportunity extends the pathway to positive Group EBITDA. Despite Ceres being the only company in the wider sector that has visibility to significant, high-margin recurring royalty revenues the shares have continued to lag both the PG Global Clean Hydrogen and Global Fuel Cell Indices by 32% and 17%, respectively, over the last 6 months. We reiterate our BUY recommendation with a reduced TP of 1870p (2025p) reflecting the increased cash outflow.
Ukraine, inflation and the stock market, Factor Tilts, Consumer Discretionary - MBO and P2P watchlist, Real Estate - Feb capital values, Commodity redEYE, CWR LN, GLO LN, ORCH LN, Mining LOWdown, SMID Market Highlights
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Ceres Power is one our favourites in the fuel cell and hydrogen space for a variety of reasons. It is the only listed player which is licensing rather than manufacturing, resulting in higher gross margins and higher cashflow potential. Unlike some peers it is a play on both distributed power (fuel cells) and hydrogen production and has an edge in both areas – fuel flexibility in fuel to power, energy efficiency in power to fuel. Most importantly it has secured licenses with three well-funded partners who have giga-scale ambitions. Royalties and positive EBITDA will motor after 2024 when partners start commercial sales but we are hopeful in the coming year(s) that new partnerships will be signed for SOFC licensing and SOEC development
FY21 outturn: FY21 revenue increased 44% y-o-y to £31.7m, slightly ahead of our £31.5m estimate. Gross profit was £20.3m, giving a gross margin of 66%, less than we had forecast (£23.5m, and 75% margin). Net cash at year-end was ahead of our estimate at £250m (we had £229m). Building scale: Several important milestones were achieved in 2021, including Bosch committing to invest €400m in a SOFC manufacturing plant over the next three years; Doosan announcing it would invest £89m to build a stack manufacturing plant in Korea; and Bosch installing circa 100 small-scale stationary power plants across Germany. Weichai/Bosch/Ceres China JV: Post year-end (on 9 February 2022), Weicahi, Bosch, and Ceres Power signed Heads of Terms on two Chinese JVs that aim to create a third global manufacturing centre. The JV structure provides a strong level of IP protection, in our view. This also expands Weichai’s development into stationary power systems as well as transportation. This deal includes £30m of engineering service fees, which provide upside risk to our revenue estimates as we cautiously upgrade by only £0.6m. There is also a much lower capital requirement from Ceres (£20m instead of £50m). SOEC development on track: The first-of-a-kind SOEC 1MW-scale demonstrator is on track to be operational in 2H22. £10.7m was invested in SOEC during FY21, with significantly more expected in FY22E. There is a high level of interest from potential commercial partners. Forecasts: Our revenue assumptions are broadly unchanged, increasing 1-2% across our forecast horizon (figure 2). We now expect FY22E to be a year of greater investment, with our assumptions for total growth investment almost doubling versus FY21A. Our EBITDA inflection in FY25E remains unchanged.
Bosch joins strategic collaboration with Weichai to access significant fuel cell opportunities in China. 3-way System JV: Bosch joins Ceres and Weichai partnership Existing manufacturing partner Bosch will join Ceres’ partnership with Weichai Power in China. Heads of Terms have been signed to set up a 3-way JV to develop and manufacture Solid Oxide Fuel Cell (SOFC) systems, in Shandong Province. SOFC system IP will be licensed to the JV for mobile and stationary power applications in China, expanding the scope of the current arrangement. Weichai will be the majority shareholder. Ceres will hold 10% maximum, with Board representation. Ceres’ investment is likely to be c£20m, over time, which compares to our previous expectation of c£50m, over 3 years. 2-way Stack JV: Weichai and Bosch collaboration for Chinese market Bosch and Weichai will form a separate JV to supply SOFC stacks to the system JV, as well as potentially third parties. The stack JV will form Bosch’s second manufacturing facility and first outside Germany (where it is planning an initial 200MW facility from 2024). Bosch is expected to be the majority shareholder. Ceres will not be a shareholder in the stack JV, but will provide SOFC technology through an extension of Bosch’s existing manufacturing licence – in order to supply the Chinese market – receiving royalties on JV stack sales, helping to de-risk long-term royalty assumptions. Our View – statement of ambition from existing partners for Chinese fuel cell markets We were cautiously optimistic that a JV announcement would include an increase in scope to include stationary power applications in China, given the potential market opportunity. Ceres has over-delivered against these expectations. Bosch entering China, alongside Weichai, with Ceres’ SOFC technology is a validation of both the technology and potential market opportunity, while bringing its ability to scale manufacturing capacity which de-risks the path to commercialisation for Ceres. Further (and while we expect greater detail in the coming weeks and months), the likely impact on consensus expectations appears to be an uplift to cash forecasts on lower near-term investment, lower future capital intensity, and greater royalties. Elsewhere, Shell has joined Doosan’s efforts to produce fuel cells for marine applications, adding further industrial validation, and we await any update on electrolysis opportunities, where the macro/geopolitics may transpire to be ultimately supportive. Forecasts and TP: Under Review
Ceres has provided a post-close trading update for the year ended 31 December 2021: Financial summary: Revenue and other operating income for the 12 month period to 31 December 2021 is expected to be in line with previous guidance at approximately £31.5m (INVe: £31.5m), representing YoY growth of 44% vs the prior 12 month period. The statement also highlights a consistently high gross margin, which should be received well given wider industrial headwinds. Cash and short-term investments were approximately £250m as at 31 December, c9% ahead of INVe: £229m (see overleaf). Strategic and commercial summary: Weichai JV: Weichai and Ceres remain committed to entering the Chinese market with SOFC technology; as such, discussions on the planned strategic relationship, include the proposed JV in China, are progressing positively, with a further update expected in due course. Doosan: Doosan completed the technology development of the 10kW SOFC systems during 2021 and is preparing for the commercial soft-launch of the product in 2022. Doosan also announced in December a 144bn won (c£89m) investment in a c79k sqm SOFC stack manufacturing plant in South Korea with production expected to begin in 2024. Opportunities stacking up: Ceres continues to build the pipeline of commercial opportunities, including in the more nascent solid oxide electrolysis market, with further updates expected on the Group’s commercial progress in the coming months. Bench strength: Eric Lakin has now joined Ceres as CFO, with Deborah Grimason also joining, as General Counsel and Company Secretary, following Caroline Hargrove who moved from the plc Board to the CTO role in October last year. Our view: Solid progress being made against multiple opportunities The statement highlights progress being made across the Group, in our view. While some may have been looking for a Weichai JV announcement, we are sanguine on timing, aware that when it comes to the transition to clean energy technology, good things have come to those able to wait, and nowhere would this appear more true currently than in the Chinese market. Our DCF-based valuation implies a TP of 1720p, thus we re-iterate our Buy recommendation. Full year results for the year ended 31 December 2021 will be released on Thursday 17th March 2022.
CERES POWER HOLDINGS - CONVICTION BUY TOP PICKS | 2000P(+68%) Ceres/RFC: attractive opportunity to broaden the IP portfolio with energy storage Early-stage but promising long-duration energy storage technology 12 month option to acquire RFC for a reasonable price Ceres could add a string to its bow with an energy storage solution RFC’s technology could help Ceres sign new licensing deals We confirm our preference for Ceres in the hydrogen universe What are flow batteries?
Strategic collaboration: Ceres announced yesterday that it has signed a joint development and equity agreement with RFC Power Ltd. RFC is a long-duration energy storage company, spun out of Imperial College London in 2017, that has novel flow battery technology. RFC has a patented chemistry that appears to promise low cost, high round-trip efficiency and long cycle-life. Ceres intends to leverage its electrochemical and engineering expertise to improve and accelerate RFC’s technology. In exchange, Ceres will receive an 8.4% shareholding in RFC. Ceres has a 12 month option to acquire the balance of the outstanding share capital of RFC for up to £25m, payable in Ceres shares, if the technology proves compatible with Ceres’ strategy. Innovating rapidly: Mark Selby, now Chief Innovation Officer, will join RFC’s Board. Mark also represented Ceres at COP26 for the official launch of the Long Duration Energy Storage (LDES) Council, formed by 24 organisations including BP, Siemens Energy and Breakthrough Energy Ventures. The LDES Council forecasts 85 - 140 TWh of capacity, storing c.10% of global electricity demand, needed by 2040 to meet net zero ambitions. Our view: Ceres is taking action to help progress long-duration energy storage technologies. It is a natural evolution of the strategy, in our view, as energy storage has a critical role to play in the energy transition and could represent a ‘third pillar’ that bridges Ceres’ solid-oxide FC/EC businesses. We make no change to estimates or long-term assumptions today but note the optionality that Ceres is building in this critical area. Bosch hydrogen event: We attended the Bosch-organised Hydrogen for Life event last week. Watch Ceres CTO Caroline Hargrove here and CEO Phil Caldwell here.
Yesterday we toured Ceres’ pilot manufacturing production facility at Redhill and were reminded of the following investment case attractions: Leader in Solid Oxide technology At a busy pilot manufacturing facility, we saw Ceres’ SteelCell® production, from raw materials through to stack assembly. We were reminded of the main advantages of Solid Oxide, being higher efficiency as well as fuel flexibility (see overleaf). SteelCell® maintains these features while operating at a lower temperature (600C vs 850C+), allowing lower cost materials in the manufacture of the cell and enabling greater robustness (i.e. using automotive-grade sealing gaskets vs expensive and fragile glass-based gaskets). We also saw how continuous development is driving power density improvements. Global partnerships to support SOFC deployment at scale The Redhill site has achieved manufacturing capacity of 2MW, having roughly doubled over the last 18 months, with plans to increase to 3MW over the next 12 months. This could go to 5MW over time. However the capacity level is less important than the ability to support manufacturing partners who can bring their industrial knowledge to scale production while Ceres focuses on technology innovation driving continuous improvement. Doosan is targeting annual production capacity of 50MW in 2024 and Bosch is now preparing to scale up to mass manufacture in 2024, targeting annual production capacity of 200MW. Significant SOEC opportunity Within our 1720p Target Price, only 85p is currently attributable to SOEC, as there are as yet no announced license partners, but for a potential market opportunity that could eventually be larger than SOFC, and what is likely to be a rich vein of catalysts through the medium-term, there appears to be significant upside here if ongoing development work bears commercial fruit. Key charts shown overleaf. Link to our last note : Hydrogen opportunities stacking up (33 pgs)
QUIZ : Reintroducing medium-term forecasts as visibility improves Analyst - Matthew Webb +44 (0)20 7886 2756 In this note we reintroduce our medium-term forecasts as the visibility on QUIZ’s outlook improves. On our new forecasts, QUIZ trades on only 4.9x CY23E EV/EBITDA, falling to 4.2x in FY24E. However, although we believe that EV/EBITDA is the most useful valuation method in this case, the much higher PE multiples are likely to serve as a constraint. Moreover, the high level of disruption and inflation in the supply chain creates some uncertainty. QUIZ has done well to weather the storm of Covid and is now in a position to return to growth. However, the shares look up with events and we retain our 20p target price and HOLD recommendation. Read More... Workspace Group : Q2 update highlights improving activity levels Analyst - Miranda Cockburn +44 (0)20 7886 2778 A positive update with activity levels up (138 lettings in Q2 up from 119 in Q2 2020), occupancy rates moving in the right direction (+2.7% to 85.6% in Q2) and importantly rents stabilising (+0.3% in Q2). With flexibility key for many tenants, we think Workspace is well positioned to take advantage of the evolving office market. The shares reached a recent high of 971p in August but have lost 15% over the past month (versus the wider UK REIT sector -9%). We think this is unwarranted and reiterate our Buy rating, the shares trading now on a relatively attractive 15% discount to NAV. Read More... PageGroup : 3Q21 update Analyst - Adrian Kearsey +44 (0)20 7886 2763 PageGroup, the international white-collar recruiter, is seeing activity accelerate. Sep-21 net fees were up +26% vs 2019 levels. This compares with up +4% in July and up +9% in August. The uplift is broadly based, driven by a mixture of sustained productivity and the benefits of headcount investment. Management is raising FY21 EBIT guidance from £125m-£135m to £155m. Given the operational momentum we increase our target price from 650p to 715p (based on our EV/NFI methodology). Please see our full report published this morning or contact your Panmure Gordon representative for further details. Read More... Faron Pharmaceuticals : Funded to next key data points Analysts - Dr Julie Simmonds +44 (0)207 886 2743 & Dr David Cox +44(0)207 886 2750 Faron is now funded until Q3 2022, sufficient to reach the next key data points; dose and frequency data for bexmarilimab and interim results of the Traumakine HIBISCUS trial. We update our estimates following interim results and the EUR10.5m fundraising, adjusting our target price to 489p to account for the dilution (prev 515p). Please see our full report published 07 October 2021 or contact your Panmure Gordon representative for further details. Read More... P&C (RE)INSURERS: Ida: an earnings not balance sheet event Analysts - Phil Dobbin +44 (0)20 7886 2776, Rae Maile +44 (0)20 7886 2860 & Ege Yigiter +44 (0)20 7886 2945 We believe the UK P&C (re)insurers have been oversold on the concerns on Hurricane Ida which has been the biggest hurricane event in 2021. We believe Ida will have an earnings impact rather than on the balance sheet. We estimate 3-7% impact to Lloyd’s insurers’ H121 tangible book, with Beazley at the lower end and Lancashire at the higher end. We also believe Conduit’s potential loss is likely to be capped by its retrocession programme’s retention which equates to 2-3% impact on its tangible book at H121. We believe the recent weak share price performance creates a buying opportunity in this sector and that Ida is likely to further underpin the reinsurance rates into the 1 January 2022 renewal. Please see our full report published this morning or contact your Panmure Gordon representative for further details. Read More... Ceres Power : Plenty of catalysts Analysts - Lacie Midgley +44 (0)20 7886 2769, Sanjay Jha +44 (0)20 7886 2805 & Lacie Joint +44 (0)20 7886 2769 Ceres reported interim results last week, where a higher proportion (62%) of high-margin (c90%) licence revenue prompts a change to our revenue mix. This increases our gross margin assumptions to 69.1/64.6/65%, well above the sector average of 38%, which remains a function of Ceres’ capital-light, licensing business model. Despite this, and that Green Hydrogen remains at this point a good option and not a driver of short-term growth, share price performance (-15%) has been in line with pure Green Hydrogen stocks over the month, which appears harsh given Ceres has met expectations where others have missed. Furthermore, there are multiple, significant catalysts for the business and shares by way of upgrades over the short-medium term; 1) completion of the Weichai JV, 2) a new/development of an existing Power partnership, 3) a main market listing and 4) the first Hydrogen partnership. Our 2,100p target price remains unchanged and we reiterate our conviction BUY. Read More... UK ASSET & WEALTH MANAGEMENT: 21, And Three Quarters Analysts - Phil Dobbin +44 (0)20 7886 2776, Rae Maile +44 (0)20 7886 2860 & Ege Yigiter +44 (0)20 7886 2945 Market volatility has been the bane of the last year when it came to striking estimates, but we have had two relatively benign quarters on the trot now. The forthcoming season of quarterly updates will show whether calmer markets are more or less helpful to flows, arguably benefitting the models based on long-term investment and hinderng those benefitting from commission income. We doubt that one quarter will have changed much in the sector, those performing strongly against peers in the first half of the year are unlikely to have stumbled now. Our preferences for quality companies within the sector are unchanged – Liontrust, Intermediate, Record, St James’s Place, Hargreaves, etc – but we are also willing to be opportunistic and upgrade Jupiter to BUY. Please see our full report published this morning or contact your Panmure Gordon representative for further details. Read More...
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Cleantech & Energy transition Q4 Top Pick : Entering the end of the year with a cautious stance on the sector Decent performance for our Q3 Top Pick : Ceres Power Power prices and interest rates will be the main drivers for the Q4 No obvious winner in our coverage We confirm Ceres Power as our Top Pick for the Q4
Ceres reported interim results last week, where a higher proportion (62%) of high-margin (c90%) licence revenue prompts a change to our revenue mix. This increases our gross margin assumptions to 69.1/64.6/65%, well above the sector average of 38%, which remains a function of Ceres’ capital-light, licensing business model. Despite this, and that Green Hydrogen remains at this point a good option and not a driver of short-term growth, share price performance (-15%) has been in line with pure Green Hydrogen stocks over the month, which appears harsh given Ceres has met expectations where others have missed. Furthermore, there are multiple, significant catalysts for the business and shares by way of upgrades over the short-medium term; 1) completion of the Weichai JV, 2) a new/development of an existing Power partnership, 3) a main market listing and 4) the first Hydrogen partnership. Our 2,100p target price remains unchanged and we reiterate our conviction BUY.
Expanding markets: Recent momentum suggests COP26 can be a catalyst for further climate co-operation. Adoption of low-carbon technologies should continue to accelerate given existing policy support. We see hydrogen playing a central role – initially in decarbonising hard-to-abate industries, and increasingly in further applications as the hydrogen economy builds out scale. H2 for the price of one: Ceres is an attractive way to gain exposure to the energy transition, in our view. We summarise the key attractions: (i) proven technology: higher efficiency, lower cost, and more readily-available materials, with dual decarbonisation applicability in fuel cells and electrolysis; (ii) global partnerships, aiding validation and driving commercialisation; (iii) a scalable model with high gross margin revenue growth from partner royalty streams; and (iv) a strong leadership team to capitalise on opportunities. Highlighting the opportunity: We see the value-creation opportunity today as twofold: (1) expanding the core SOFC offering as commercialisation progresses; and 2) developing the nascent SOEC offering to (a) decarbonise existing industrial demand with green hydrogen, and (b) expand use cases as hydrogen eco-systems build toward critical mass, triggering a virtuous cycle. Interims: 1H21 results are in-line and FY expectations are unchanged. SOFC commercialisation efforts continue to progress. The SOEC demonstrator remains on track for 2022 and Weichai JV discussions are progressing well. Estimate changes: We lift our near-term estimates, towards the consensus mid-point. (see table on page 4). Long-term assumptions are unchanged. Valuation: DCF-generated TP of 1720p (unchanged). We reiterate our Buy.
Ceres Power, Commodity snapSHOT, Kier, Factor Tilts - Value Stocks Oversold But Too Soon To Buy, Smart Metering Systems
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DFC reported a loss before tax of only £2.3m in H1 2021, a 68% YoY improvement vs H1 2020 and a £641k (28%) beat vs our forecast. The key drivers of this outperformance were an impairment charge of only £163k (21bps); a £459k (282%) beat, and costs of £7.4m; a £263k (3.6%) beat. Income “missed” by £81k (1.5%) entirely attributable to the full repayment of £89m furlough income received in 2020. We are particularly encouraged by the fact that DFC continues to deliver record originations which are now converting into fresh growth in the loan book as the re-stocking period gets underway. Originations of £295m in H1 2021 were a record (Fig 1 of the full report) but the pace has improved further with c.£170m in Q3 2021 (to 20 Sept 2021). The gross loan book has increased from £167m in H1 2021 to £194m at 20 Sept; we forecast a record £280m by 31 Dec 2021e. Total revenues improved from £2.0m in H1 2020 to £5.3m in H1 2021, primarily reflecting a rebasing on NIM from 2.0% to 6.8% in H1 2021 (Fig 4). This helps to drive sharply improving operational leverage. DFC remains highly liquid and pre-capitalised for growth. The fact that DFC chose to increase customer deposits from £165m at 30 June 2021 to >£280m today is indicative of management’s confidence of strong loan growth ahead. DFC also boasts a CET1 capital ratio of 50.7%. Our EPS forecasts improve by 17% in 2021e, largely reflecting the outperformance on costs/impairments already seen in H1 2021, and by 2%/1%/1% through 2022/23/24e. As such, with the shares trading on 0.8x 2024e tNAV (Fig 9) against our forecast of a 20.3% ROTE by 2024e (Fig 10) we continue to regard the shares as materially undervalued. We reaffirm our 95p TP and Buy recommendation.
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Appointment of Caroline Hargrove as Chief Technology Officer Caroline Hargrove, Non-executive Director since September 2018, has been appointed as Chief Technology Officer (CTO), effective from 25 October 2021. Caroline will step down from the plc Board on the same date and join the Executive Management Board. It is the Board’s intentions to appoint a new independent Non-executive Director in due course. Caroline has extensive experience in growing and managing technical teams and commercialising new technologies across several high growth sectors; including stints as a founding member and CTO of McLaren Applied Technologies, CTO on Babylon Health and most recently as CTO of medtech start-up, Zedsen. Mark Selby becomes Chief Innovation Officer Mark Selby, current CTO, will move to the newly-created position of Chief Innovation Officer (CIO). Mark has been with Ceres since 2006 after joining from Ricardo, and has played a pivotal role in establishing Ceres as a global leader in fuel cell technology. Mark is stepping away from the day-to-day operational requirements of the CTO role to focus on developing opportunities for Ceres beyond the established solid oxide portfolio, building a team and external relationships to grow the range of potential opportunities for Ceres, aligned with its purpose of meeting the challenge of climate change. Our view…watch this space In our view, the strength and breadth of the Executive Management team and the plc Board is a key attraction to the Ceres story. Today’s announcement highlights this, with NED Caroline Hargrove moving into the CTO role as Mark Selby moves into the newly created role of CIO to focus on the long-term evolution of Ceres, building on the current IP-rich technology portfolio. At the inaugural Investec Alternative Energy conference last night, Professor Nilay Shaw of Imperial College London presented eloquently on hydrogen being an effective point source solution for many problems, with more expansive deployment benefiting from a change in thinking to a whole-systems approach. With this in mind, we look forward to the future evolution of Ceres’ clean power and hydrogen offering which should drive continued value-creation for the equity story. Next event – 1H21 interim results announcement – 30th September 2021
Ceres Power, SAS - Retail is not dead, Restaurant Group, Keystone, Wickes, Superdry, Mining LOWdown, Market highlights
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Ceres Power, SAS - Retail is not dead, Restaurant Group, Keystone, Wickes, Superdry, Mining LOWdown, SMID Market highlights
In this report we further our valuation work for the opportunity in electrolysis and extend our DCF for fuel cells. There is a possibility of a pullback as 1H results at the end of the month are unlikely to include new announcements, while the company’s near-term valuation (EV/Sales) and 12m share-price performance exceed those of peers. That said, we believe Ceres should be a core position for portfolio managers seeking exposure to the energy transition, given its strong tech, asset-light licensing model, robust finances, and strategic partners. Our valuation work indicates fair value of 1,460p, offering solid upside. BUY.
Yesterday, Ceres announced that its strategic partner in Korea, Doosan, the largest stationary fuel cell OEM globally, has completed the development of its 10kW solid oxide fuel cell (SOFC) system for use in buildings and houses. Importantly, the system delivered 40% higher power generation efficiency when compared with Doosan's existing Proton Exchange membrane (PEM)-based technology, which according to Doosan is "among the highest in the world". Doosan’s progress to product launch signals another major milestone for SOFC in a market dominated by PEM in transport. Ahead of the interims on Thursday 30th September we reiterate our BUY recommendation.
1H on track with FY21 revenue expectations This pre-close trading update confirms 1H revenue will be circa £17m, up 90% y-o-y, and at a high gross margin. It remains on track to deliver full year revenue in line with consensus estimates of £31.5m, barring no additional Covid-related restrictions/disruptions. Interim results due 30 September. We leave our forecasts unchanged. In our view, Ceres remains one of the best ways to gain exposure to the global energy transition. New Weichai agreement Today’s new news is the announcement that management have agreed a new joint development programme with Weichai for a stationary power application, alongside the existing transportation/mobile power agreement. They will jointly develop a 30kW stationary power module which we believe will initially target data centres, as well as other local applications. Progress has been made in discussions around the $50m Weichai JV in China, albeit this has been slower than originally expected (we had expected an announcement in 2Q21). This delay is likely linked to negotiations around the new stationary power agreement. Both parties are aiming to form the JV by the end of 2021. Bosch to invest €400m in SOFC Bosch is targeting investment of €400m over the next three years into its SOFC business, with plans to install circa 100 small-scale fuel cell power stations in 2021. These will be installed in data centres, industrials firms and residential neighbourhoods. AVL partnerships started strongly The AVL relationship has already introduced three-early-stage projects along with a significant pipeline of opportunities. Shipping MoU opens up another end market Doosan has signed a memorandum of understanding with Korea Shipbuilding & Offshore Engineering to jointly develop a SOFC system to provide cleaner power for ships. SOEC gaining traction The 1MW-scale SOEC demonstrator continues on track to be operational in 2022. There has been strong interest from potential commercial partners since the 1 July SOEC CMD. We believe this demonstrator, and future larger scale units, will be key to proving the SOEC technology works at scale. Picking the key development partners will be the next challenge. SOEC royalties offer significant upside risk to our outer year (2025 and beyond) forecasts.
Cleantech & Energy transition Top Picks Q3 2021 : Ceres Power Looking back at Q2 2021 What to expect in Q3 2021 We confirm (once again) Ceres Power as our Top Pick
Yesterday, Ceres hosted a virtual teach-in on its solid oxide electrolyser (SOEC) technology. No new financial information was disclosed but we were again encouraged by the impressive and experienced team and the approach being taken to establish a successful Hydrogen business. In this short note we look at the new information presented and key takeaways from the event.
SOEC event highlights Our key takeaway from the SOEC event yesterday was that Ceres confirmed its SOFC can ‘easily’ be reversed to make it into an electrolyser with minimal technology change. This is the best outcome we had hoped for and means the Ceres IP/technology now has two significant end markets to address rather than just one. The same core cell and stack technology platform and IP portfolio can be used in both SOFC and SOEC. It will have the same manufacturing process and supply chain, and is expected to be offered on the same partnering model. The £100m of new capital (out of the £181m equity raise in March 21) allocated to be invested in developing the SOEC can now be focused on speeding up commercialisation and aiding partners to have systems ready to sell in 2025, or maybe even sooner. An initial 1MW prototype electrolyser system, based on 8 Steelcell stacks inside a 40ft container, is being built and will be in field trails next year. This unit is expected to produce 600kg of hydrogen per day with system efficiency >80%, LHV, AC. Ceres believes its solid oxide electrolyser is more efficient (even without using waste heat) than PEM and Alkaline technology (74% versus up to 68%). Using waste heat from industrial processes or from nuclear, increases the efficiency to 95%. Electrolysis is a core part of decarbonisation Using renewable energy to created green hydrogen through electrolysis will be a key part of powering the world in 2050, we believe (Figure 1 overleaf). This hydrogen can then be used for e-chemicals, e-fuels, industrial feedstocks and blending with natural gas for use in existing heat & power infrastructure (Figure 2). Hydrogen demand set to grow 7- fold by 2050 The hydrogen market could be massive. Electrolysis is seen as the optimal way to make green hydrogen and Ceres believes it has the most efficient system. McKinsey and the Hydrogen Council estimate that by 2050 there could be a potential $2.5 trillion market for hydrogen gas and electrolysis equipment. Global hydrogen energy demand could increase from 70 MT in 2020 to 539MT by 2050, with hydrogen 18% of 2050 energy demand (Figure 3). Hydrogen price inflection by 2030 By 2030, the hydrogen market is expected to have inflected, with green hydrogen commercially competitive. Ceres is targeting market entry in 2025 with a price point of $1.50 per kg. This could reduce towards $1 per kg by 2050. Overall, there are now two end markets for Ceres technology; both have huge growth potential we believe. We are visiting the Redhill production facility next week. We leave our forecasts unchanged, reiterating our Buy and 1720p TP.
Cleantech & Energy transition Top Picks Cleantech & Energy Transition Q2 2021 Looking back at Q1 2021 What to expect in Q2 2021 We confirm Ceres Power as our Top Pick for the Q2 2021
Parsley Box, the direct to consumer provider of ready meals to the 60+ demographic, recently announced its AIM IPO plans. Parsley Box provides ready meals, which are not required to be stored in a fridge or freezer, have a shelf life of up to six months and are cooked in minutes. The company reported revenue of £24.4m for the financial year ended 31 December 2020 (unaudited). Deal details TBC and admission is expected to occur late March/ early April 2021. ActiveOps, a UK-based leader in Management Process Automation (MPA), providing a SaaS platform to large enterprises with complex and often global back-offices is planning to join AIM. Details TBA. Due late March. Caerus Mineral Resources, a London based exploration and resource development company focused on developing mineral resources in Europe, recently announced the acquisition of New Cyprus Copper P.A. Ltd and its intention to IPO onto the Standard List. The NCC Acquisition provides Caerus with access to copper - gold exploration licences in the Republic of Cyprus. The company has raised circa £2.25m by way of placing and subscription. First Day of Dealings expected 19 March 2021. Proposed move to AIM from the main market (standard) by Emmerson (EML.L) to provide Emmerson with access to a market and environment which is more suited, in the Board's view, to the Company's current size and strategy ahead of pivotal period for the Company with the commencement of mine construction at the Khemisset Potash Project expected by end of 2021. Follows recent award of Mining Licence granting Emmerson exclusive right to develop and mine the potash deposit and £5.5m raise to fund ongoing project development work. Subject to EGM on 21st March. Global review platform, Trustpilot has announced its intention to float on the premium list of the LSE. Trustpilot provides an open platform, which creates a place where businesses and consumers can gain actionable insights and collaborate. Consumers are able to share feedback, at any time, about any business with a website and review feedback left by other consumers. Total revenues were US$64.3m, US$81.9m and US$102.0m for the years ended 31 December 2018, 2019 and 2020, respectively. The Offer would comprise new Shares to be issued by the Company (raising gross proceeds of approximately US$50m to support Trustpilot's growth plans and repay indebtedness) and an offer of existing Shares to be sold by certain existing shareholders, directors and employees. Timing TBC. Media reports video game firm, Catalis is mulling a London IPO, just over a year after being bought by a private equity firm. Catalis’s accounts are reportedly expected to show revenues increasing to £60m in 2020, up from £43m, with adjusted earnings of £15m. Deal details and timing TBC. Samarkand Group Limited, the cross-border eCommerce technology and retail group opening up the world's largest market for brands and retailers, intends to IPO on the Apex Segment Aquis Stock Exchange Growth Market. Admission is targeted for March 2021. NextEnergy Renewables to launch an IPO on the Main Market. NREN is a differentiated renewables investment Company that aims to capture the most attractive private renewables and energy transition infrastructure investment opportunities globally. Targeting a £300m raise. NREN is targeting total returns of 9-11 per cent. per annum (net of all fees and expenses but including the Target Dividend and capital appreciation) . The Company's target dividend yield for the first full financial year to 31 December 2022 is 5.5 pence. Due Early March 2021. Digital 9 Infrastructure launch an initial public offering on the Specialist Fund Segment of the Main Market of the London Stock Exchange, by way of an initial placing and offer for subscription for a target issue £400m. Digital 9 Infrastructure plc is a newly established, externally managed investment trust. The Company will invest in a range of digital infrastructure assets which deliver a reliable, functioning internet. The IPO Prospectus is expected to be published in March 2021. Fix Price announces its intention to float on the Main Market of the London Stock Exchange. Fix Price is one of the leading variety value retailers globally and the largest in Russia, with more than 4,200 stores. Fix Price has revenues of RUB 190.1bn, RUB 142.9bn and RUB 108.7bn for 2020, 2019 and 2018, respectively. Adjusted EBITDA for the same years was RUB 36.8bn, RUB 27.2bn and RUB 14.2bn, respectively. The Offer would consist of an offering of GDRs by certain existing shareholders of the Company. Great Point Entertainment Income Trust PLC announced its prospectus has been approved by the FCA. Great Point Entertainment Income Trust PLC is a newly established, externally managed closed-ended investment company. The Company will provide project finance to content makers and commissioners in the global television and film production industry via senior loans secured against pre-sold intellectual property (IP) rights. GPEIT's investment objective is to provide Shareholders with dividend income and modest capital growth through exposure to media content finance. Deliveroo is considering applying for admission of the Company's Shares to the standard listing segment of the Official List of the FCA and to trading on the main market of the London Stock Exchange. Deliveroo works with over 115,000 best loved restaurants, takeaways and grocery stores globally and provide work to over 100,000 riders across 800 locations in 12 markets, serving 6m customers globally.
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CERES POWER HOLDINGS - Conviction BUY Top Picks | GBP2000 VS. GBP1600 (+81%) Ceres adds a string to its bow with electrolysers GBP180m fundraising supported by Bosch and Weichai Expanding into electrolysers (SOEC), a massive opportunity Positive stance confirmed, Conviction Buy, TP 2000p vs 1600p
CERES POWER HOLDINGS - Conviction BUY Top Picks | GBP1600(+9%) Strong commercial progress. Everything is on track Revenues and order book above expectations Strategic outlook is bright Still our favourite on the sector
CERES POWER HOLDINGS - Conviction BUY Top Picks | GBP1600(+1%) Ceres is the Arm of hydrogen Who is Arm ? Arm and Ceres’ profiles are similar Ceres’ valuation is still attractive Ceres is our favourite on the sector
Cleantech & Energy transition Top Picks Cleantech & Energy Transition Q1 2021 Looking back at Q4 2020 What to expect in Q1 2021 Ceres Power is our Top Pick for Q1 2021 Ceres less expensive than one might think Factoring in the growing maturity of the operating profile
Podcast - ESG - Investing and Meaning, Hydrogen Snippets, Ceres Power, Ted Baker, Vertu Motors, Market Highlights
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Bosch announces 200MW SOFC factory scale-up
Ceres has announced a major extension of its collaboration with Doosan for utility scale power markets. The agreement will trigger £36m of license payments over three years and an additional £7m contingent on KPIs and involves Doosan building a manufacturing plant in Korea with initial capacity of 50MW.
DFC (mkt cap US$2.3bn, N/R) currently manufactures phosphoric acid fuel cells that can run on natural gas or hydrogen, as with Ceres technology. These fuel cells operate at a lower temperature and achieve 40-45% electrical efficiency, whereas Ceres can achieve 60%. DFC outlined a plan to deliver fuel cell sales for power generation of KRW1,500bn (c. US$1,300m, a recent 50% increase to the previous target) by FY23, having started commercial sales in 2016 at KRW77bn and achieving KRW480bn revenues in FY19 (KRW452bn FY20 target). Within its FY20 results, it forecast 300MW of orders by 2023 as a market size, with 129MW of orders in FY19. The deal with Ceres will expand its offering, and 50MW is a material capacity addition. The opportunity – DFC is well established (discussed overleaf) with considerable capability and 70% mkt share in Korea. The government is highly supportive of fuel cell technology, targeting 16GW by 2040 and its green new deal commitment stands at US$64bn. As a major natural gas importer, fuel flexible fuel cells are an attractive generation solution. The deal is at the stack level, similar to that which Ceres has agreed with Bosch, with DFC to use its extensive experience to develop systems with higher power, initially focussed on domestic markets, but is set to export overseas longer term. As larger scale units are developed then new market opportunities will evolve for Ceres technology. The deal is also indicative of an acceleration of progress. Our View - This is an exciting transaction, de-risking the offering considerably and adding confidence to the long term value proposition. Being the first partner to make public its commitment to move to commercial production at scale shows confidence in the technology and may lead others to accelerate plans. We leave forecasts unchanged, but reduce our discount rate from 12% to 10.5% to reflect a material de-risking, lifting our TP to 820p, Buy.
In this edition, we focus on planes and trains. In both cases, we think more than 1/3 of the 2050 fleet could be hydrogen powered and in the case of aviation, much of the remainder could use green hydrogen based synfuels. In trains, the competing low carbon technology is track electrification but hydrogen fuel cell trains provide a lower cost option for low frequency routes or challenging topography. In planes, the competition will come from biofuels. Our report discusses Airbus’ plans to have hydrogen turbine planes in the air by 2035, UK based ZeroAvia’s recent maiden hydrogen fuel cell flight and the hydrogen train and tram projects already underway in Germany and China using Hydrogenics and Ballard fuel cell technology.
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The week's most insightful research and ideas
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Ceres shares have almost doubled over the last 12 months but have underperformed peers given our representative fuel cell/electrolyser company index is up 3x. In our view, this has little to do with growth and profitability prospects and is primarily due to technical headwinds – profit taking by some longstanding holders – and the fact it has a smaller retail following than UK New Energy peers.
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Ceres revenues increased 21% in the 12m to June despite challenging market conditions and most importantly there were encouraging signs in relation to partner messaging and product development. We continue to believe Ceres should be a core holding for impact investors given its energy efficient fuel cell technology, asset light licensing model and interesting optionality in hydrogen production.
Financials: CWR has delivered revenue of £19.94m in the 12m to 30 June, in line with our expectations, and up 22% yoy at a 73% gross margin. Adjusted EBITDA at -£6.5m is down from -£5.9m reflecting rising investment. The balance sheet remains strong with cash of £108m, along with an order book of £14m plus a £54m pipeline. Operations: Progress continues on numerous fronts. Bosch has started trialling 10kW units, and intends to install SOFC systems at various sites. It is also now manufacturing core Ceres cell technology. Weichai’s 30kW range extender for electric busses is moving into field trials and Miura is more widely deploying systems. Progress continues with manufacturing at Redhill and the Weichai JV investment is set to take place in H1 of next year, intended to provide a path for volume manufacturing of its range extender solution. CWR is due to release its next generation of the technology (V6) in CY21 and move from 30kW to 100s of kW systems in the years ahead. Work also continues on evolving the tech as an electrolyser that could be well suited for use in industrial applications such as steel and refineries utilising process waste heat. CWR also plans to form a strategic relationship with an engineering company to enable accelerated development of higher power systems. Forecasts: Our updated forecasts are adjusted for the new y/e (Dec), so FY20 will reflect 18months of activity. Thereafter we leave our royalty development profile largely unchanged other than pushing it back 6 months to capture Covid-related delays. We increase costs as the company is investing more into R&D to further develop its technology offering, and in turn, drive value. Our View: The Covid crisis has accelerated progress in the energy technology space and, despite some near term disruption, the drive to progress and commercialise the technology with various partners is strengthening. Further evolution of the technology will open further avenues for the technology.
Operations: Commissioning of the Redhill continued into January, but was then was hampered by the Covid crisis that led to a slower ramp-up than anticipated as well as some delays in customer programmes. The full onsite team returned in early May and production reached a record in June. Bosch has also commenced manufacturing of Ceres SOFC technology in Germany. Business development: Ceres has been recruiting to support increased demand for its technology. Its partnerships are progressing despite some Covid-related delays such as the time line for the Weichai/Ceres JV. The company expects to sign a new customer partnership in the second half of the year that would be another milestone in demonstrating the role that the technology has to play for its partners to evolve with the energy transition. Ceres is also investing to increase output at Redhill from 2MW to 3MW during 2021. With an exceptionally strong balance sheet following investments from partners Weichai and Bosch earlier this year, Ceres is in a position to invest further in its technology and add value. Consequently, it plans to deploy £5m into using its solid oxide electrochemical technology for electrolysis, for example to generate hydrogen and synthetic fuels using electricity. The macro: We note a continued and ever more positive outlook driven by an accelerating decarbonisation agenda. Various countries are setting state targets for fuel cells and electrolysis usage, including China, South Korea and Europe. Major corporates continue to deploy meaningful resources to evolve their businesses for the macro by investing in adopting relevant technologies. Our View: Despite the challenges from Covid, Ceres has largely delivered to plan and is well positioned to develop new opportunities which we feel de-risks the business and justifies our upgraded TP. We make small changes to numbers and will update in due course for the y/e now moving to December.
Our Journey: We began looking at the potential use of hydrogen in the context of energy storage in “A question of balance” (May 2016), subsequently publishing various reports and organising investor events to discuss the growing range of opportunities. Commercial momentum is now building rapidly, along with growing investor awareness of the set of possibilities for hydrogen in the energy transition. The many roles of hydrogen: Hydrogen sits at the heart of an electro-chemical energy revolution. It his increasingly seen as core to enabling 2050 net zero targets to be achieved. The gas can be used to store energy, heat homes, decarbonise hard-to-abate industries (such as cement, steel, glass and petrochemicals) and generate electricity, both in stationary applications and in transport, particularly for commercial activities that require range and high usage. Environmental agenda: Hydrogen’s role at the centre of various decarbonisation strategies is being increasingly recognised and supported at government levels. An EU stimulus package of €1tn is planned, of which €10s of billions are to be deployed for to scale up hydrogen technologies. In the words of EC Commissioner Simson, hydrogen ‘has the potential to be a game changer’. Key developments: A growing number of major companies in the energy space are looking at large scale projects, including Orsted, Shell and BP, as ‘green’ hydrogen is one of the few pathways available by which their business models can adapt to the energy transition. In many parts of the UK and Europe, work is already underway to update gas networks to enable them to transport hydrogen. Commercial vehicle OEMs, train manufacturers and shipbuilders are investing to move the powering of transport over to fuel cells. Implications for investors: Investing directly in the hydrogen theme is challenging from a valuation perspective because the IP-owners are typically relatively small-scale and not yet generating material profits. One route for investors is to identify companies with unique IP and attempt to assess the long term value of the technology. Within our coverage, we highlight ITM Power and Ceres Power as examples and raise our target prices on this basis, to 335p and 580p respectively. Given very strong recent performance, we move ITM Power to Hold (from Buy). An alternative is to invest in high quality diversified companies that are active in the space and positioned to participate in likely overall industry growth. In this context, we highlight Umicore (Hold, TP €45/share).
Ceres has reported solid 1H results today for the 6m ending December 2019. Revenues and other income rose 34% yoy to £11m and similar revenue growth is expected in H2. Gross margin was 67%, consistent with the asset-light licensing business model and superior to peers who manufacture and sell, where GM is 25%-30%.
Operations: In the period and subsequently, important milestones have been delivered. Bosch lifted its stake to 18% and Weichai has since elected to use its anti-dilution clause to maintain its 20% stake. In addition, a license/collaboration deal with Doosan was signed (£8.0m over 2 yrs). Miura has concluded a soft launch of a CHP product using Ceres technology. Weichai’s range extender prototype has moved ahead and, subject to successful trials of a second iteration system later this year, a JV fuel cell manufacturing company will be formed (£8m min Ceres investment). Bosch has started low volume production of systems and stacks from a plant in Germany. The Ceres plant is in the early stages of ramp up to 2MW p.a. albeit with some early stage issues, although the plant is due to be expanded to 3MW p.a. in due course. The company’s order book is £22m with a £50m pipeline. Results: Ceres achieved a 34% revenue and income increase and the EBITDA loss at £1.4m was an improvement on -£2.0m a year ago. What is key is that gross margins at 67%, whilst weaker than 82% last year due to the revenue mix, are above the 50% minimum target and ahead of our full year 56% estimate. We make no changes to our forecasts other than to reflect the additional capital. Technology: With strong cash resources the company is well placed to add value by evolving its technology for other uses. The V6 iteration is on track for FY21 and the company has developed a lower cost hydrogen-only system. In addition, work is underway to scale up the power in applications, and research is in progress to assess using the technology as an electrolyser. Our View: Ceres continues to grow, with the value in its unique technology recognised by major companies. Management expects to sign 1-2 additional license agreements per year that will drive further value and opportunities. Despite macro challenges, we believe Ceres is well placed in a fast changing energy world and well positioned with an array of high quality partners.
When we initiated coverage last June we estimated earnings and FCF reaching over £100m p.a. within a decade based on the potential from three target markets for its fuel cell partners - commercial power including data centres, commercial heating and battery/fuel cell hybrid commercial vehicles. We had a target price of £3/shr using a 10yr DCF and 11% WACC but said we saw scope for the TP to rise above £6/shr when customer programmes started and 8% WACC became fairer.
Bosch increased its holding in Ceres through an equity raise (11.9m shares to raise £38m) and reverse accelerated book-build, both at 320p. With Bosch set to be at c.18% (up from 4%) and Weichai at 20% (pre the transaction), we believe the share register is well balanced. The move by Bosch suggests increasing confidence in Ceres technology and means it is well placed to benefit as the technology evolves. Bosch will nominate a representative on the Ceres board. The German major has begun initial low volume production of pilot systems at its plant in Bamberg, Germany. We hope to see, either towards year-end or into 2021, Bosch invest further in commercial-scale capacity using Ceres technology as another key milestone. Weichai has anti-dilution rights to maintain its 20% stake at the same terms. It may seek to exercise this right, which would lift total dilution to 9.1% from 7.2%. Financials: Following the equity raise, we take our FY20E net cash forecast to £96.5m (from £59.3m). The company has indicated that some of the funds will go towards R&D to expand the technology into higher power applications and look to use the technology in reverse, e.g. in electrolysis, to produce hydrogen and e-fuels. We expect further details on R&D investment after the interim results on 16th March. For now, we leave our forecasts unchanged other than adjusting for the additional cash reserves and associated interest. Our view: The move by Bosch is a strong endorsement, demonstrating increasing confidence in Ceres technology and its long-term strategy as it evolves for the energy transition and seeks to diversify from engine-related activities (notably diesel). We note that the move came just ahead of the conclusion of the standstill period for Weichai post its acquisition of a 20% stake last year. As development progresses with Bosch, Weichai and other partners (Doosan, Miura, Cummins, Honda), we expect further pathways to adopting the technology to become more apparent.
The big picture: The battery market for transport is set to be very substantial, with billions of dollars/euros of investment committed and investment accelerating. Northvolt cites estimates of a lithium ion battery market rising from 80-90GWh/year in 2016 to 1000GWh by 2025 and 2700GWh by 2030. Management takes the view that if a company is in a position to produce batteries (or materials) today at the required quality and technology, it will be able to sell product. Pricing is of course still important, but if an acceptable price point can be achieved, then demand is the greater driver, certainly for the next 10 years. Overview: The company, founded by two former Tesla executives, has made major progress and signed agreements with an order value of US$13bn through to 2030. Northvolt Labs in Sweden has started up and will have 350MWh p.a. of capacity once at full rates. It has a cell manufacturing site in Poland, Northvolt Battery Systems Jedda, that undertakes system R&D and is due to have systems capacity of 10,000 p.a. Its first major plant, Northvolt Ett, in Sweden, has started construction; it will start up in 2021 and is due to reach 32GW p.a. by 2024, expandable to 40GW p.a. by 2040 (for comparison, Tesla’s Gigafactory 1 was set to reach 30GWh p.a. capacity in December 2019 with a long term target of 54GWh p.a.). Thereafter, Northvolt is in the planning stages for its next plant, Northvolt Zwei, in Germany near to VW’s Zwei EV manufacturing plant. Construction is scheduled for 2021 with production start-up in 2023/24 at 16GW p.a. initially. Eventually, the company is targeting a 20% market share of the EU lithium ion battery market. The goal is to be integrated, from sourcing raw materials to finished battery systems and then recycling, to capture as much of the value chain as possible. Longer term, management is also looking to get involved in the fuel cell space. Our View: Northvolt’s goals are ambitious, and we would be surprised if the entire cradle-to-grave model to maximise the value share of the chain will ultimately be delivered. However, much has already been achieved in a relatively short period of time. We believe this was enabled by the focus on established technologies, aiming to deliver what its customers want most urgently, rather than proposing cutting edge “next generation” innovations. The automotive industry is one of “mega scale” - OEMs need proven technology at high quality and in volume. The progress to date, the partnerships formed and the future plans demonstrate how a “designed for purpose” business model can advance. By contrast, trying to adapt existing business models following the success of transformational technology is typically sub optimal, and often proves terminal for incumbents that are unable to reset from a clean sheet.
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On December 11th, Liberum held its fourth annual new energy conference "The Future of Electromobility’’ with a great line-up of speakers from the hydrogen and fuel cell sector. In these four short videos the CEO’s of Ballard Power, Ceres Power and Nel Hydrogen and the head of Air Liquide’s hydrogen business discuss their business and industry issues
Ceres Power Holdings plc Air Liquide SA
The event Ceres hosted a CMD at its new manufacturing plant in Redhill, providing greater insight into the technology, manufacturing, marketplace and business strategy. Key staff managing technology, manufacturing and commercial business development presented, along with a representative from Bosch – a strategic partner and major shareholder. The macro Momentum in the fuel space is accelerating rapidly. This has been driven by the need to tackle air quality, climate change, balance renewables and improve energy efficiency. Ceres’ technology addresses all of these needs. The company cites US$1bn investment in 18 months by OEMs into companies with the desired technological IP (see Figure 1 overleaf). The plant The new plant provides a blueprint for future plant developments, demonstrating how the technology can be built at batch scale and contributing to the development of unique IP (see Figure 2 overleaf). The technology It has taken over 20 years to develop the technology that is today reaching a pivotal point in maturity with a supportive macroeconomic backdrop. The technology offers high efficiency and a route to zero emissions able to cross the energy transition from hydrocarbon fuel and pure hydrogen given its fuel flexibility. It can also be designed for pure hydrogen only. The business model The licensing business model enables major OEMs that are behind in their decarbonisation strategies and need to evolve a product to participate in the space. Ceres is able to work with an increasing number of partners in a range of applications suitable to deploy the technology. See Figure 5 on page 4. Our view The company is at the leading edge of the energy transition with technology that offers many major companies an attractive strategic solution. The team is mitigating risk and continuing to evolve the technology and its commercialisation.
Ceres has made a strategically important RNS this morning indicating it has launched its first hydrogen fuel cell system giving customers a zero carbon option system looking forward in addition to its low carbon natural gas systems - one of two areas we hoped it would develop into. Our note today explains the merits of having a fuell cell system designed specifically to work with clean hydrogen, flags next week's CMD at the new Redhill facility and Liberum's December's conference at Liberum and highlights the reasons why the hydrogen/FC sector has been booming.
Updated numbers: FY19 results were ahead of our estimates, although we lower FY20E earnings with operating profit moving to £-9.7m (from £-8.0m) as the group takes on more costs due to higher activity. This trend also impacts FY21E with EBITDA at £-2.5m (previously £-1.6m). Thereafter, however, we lift our estimates materially due to higher licensing fees and strategic partnerships advancing. The signing of additional partners and extension of licensing fees with existing partners could well see further sources of revenue materialise across our forecast period. Turning a profit: Whilst the real value case in Ceres is the longer-term adoption of its technology on a commercial scale by its partners to drive royalty income, a key moment for investors in technology companies is the point of profitability. Our updated estimates see this brought forward to FY23E for earnings, and earlier at the EBITDA level (FY22E). We see scope for these dates to move even nearer, subject to progress with existing and future licensing partners. Our view: The business is evolving rapidly with its technology garnering ever more interest, both with investors and partners, as the pollution control and decarbonisation agendas generate greater momentum in the fuel cell space. The fuel flexibility of the Ceres SOFC technology and robust nature of its diverse applications in stationary and transport are important catalysts, with the focus now on power density and cost gains to accelerate deployment. For those companies lagging in the global energy transition, Ceres’ technology offers a potential path to catch up with clean, efficient and flexible energy.
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FY19 results In line with the pre-close trading statement. The company delivered £16.4m of revenue, up 133% yoy, at a gross margin of 75% (INVe 70%) leading to an operating loss better than our estimate at £7.9m (INVe -£8.5m/consensus -£8.4m) reflecting an improvement of 33% yoy. Cash at the end of the period stood at £71.3m. Ceres reports a strong order book of £28.4m and a pipeline worth over £50m. Progress on multiple fronts FY19 was a transformational year with a first product launch with Japan’s Miura for a combined heat and power (CHP) system that will see first commercialisation in Q4 of 2019 as part of a soft market launch. The strategic partnerships with Bosch and Weichai progress. Bosch is developing its own low volume production, mirroring Ceres’ own new plant under construction, which will contribute to the development of future larger plants to be developed by Ceres’ partners. Weichai and Ceres have now produced the first prototype 30kW SteelCell range extender using CNG as a fuel, marking a major milestone in the collaboration between the companies. Post the year-end, Ceres signed a two-year collaboration with Korean major Doosan worth £8m over two years. Progress also continues with leading OEMs, Cummins and Honda. The technology continues to evolve, with the latest V6 now delivering 60% net efficiency, over twice that of a conventional gas engine and better than centralised gas turbines if factoring in transmission losses. Engineering is underway for the next 5kW stack design. The SteelCell technology can be made at capacities that mean it can be placed where the power is needed rather than MW scale power plants that need significant grid infrastructure to deliver the power to the source of demand. The company has doubled its workforce since 2017, to 240, adding 70 professionals to the business in the last year. This will enable Ceres to deliver to its increasing number of partners whose projects are advancing against an increasingly favourable macro-economic backdrop for fuel cell solutions. Our View A positive update with numbers in line or slightly better than our expectations. Management is delivering to plan and the company is well on the way to commercialising its technology across numerous applications and opportunities through its partners. The range of partners helps to mitigate delivery and adoption risk of this exciting technology that offers fuel flexibility (carbon based or hydrogen) and high efficiency that is ever more relevant in an increasingly environmentally conscious world focused on cutting emissions and decarbonisation.
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FY results contain few surprises as the trading update in July had already revealed revenues and that operating losses had 'reduced significantly. The shares are now up almost 30% since we initiated with a Buy in late June but still over 30% below our DCF valuation based on forecasts through to 2030.
The shares of Bloom Energy (BE US), Ceres SO fuel cell rival, were down sharply yesterday following a short-seller research attack from Hindenburg Research. HR claims Bloom servers are wearing out much faster than anticipated resulting in a $2bn servicing cost liability that is not recognised in the accounts and big future cash expenses.
Ceres has announced a fourth licensing partner today - Korea listed Doosan Corporation - for 5-20kW systems targeted initially on the Korea commercial building sector. The upfront revenues associated with this collaboration are expected to be £8m over two years.
Operations: A positive update that reports revenues up 135% yoy, ahead of management expectations of £15m, as strong progress continues with commercial partners. Ceres is also investing £8m at its new manufacturing facility in Redhill that will be used as a reference manufacturing plant for rising customer needs, and to act as a blueprint for licensee manufacturers. The company expects continued revenue growth. The balance sheet remains healthy, with over £71m of net cash, putting the company in a strong position to continue development and investment. Changes to estimates: We update our numbers, lifting revenues (+17% and +26% in FY19E and FY20E) to come into line with the latest update, although we also raise costs as the company is accelerating activities that offsets some of the near term benefit. Our FY19E LBT improves by 1% to -£8.3m and FY20E 7% to -£7.3m. Our View: A positive update from the company and whilst we have increased certain costs, this reflects an acceleration of activity across the group that we anticipate will support stronger growth in outer years. The underlying macro conditions for Ceres continue to strengthen, as evidenced by the work its partners are moving ahead on. We look toward further updates on progress with existing and potential customers where we hope to see another partner signed up this calendar year. Valuation: We update our forecast and our 10 year DCF that informs our new TP of 300p. Full year results are due for release in early October.
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Operations: A positive update that reports revenues up 135% yoy, ahead of management expectations of £15m, as strong progress continues with commercial partners. Ceres is also investing £8m at its new manufacturing facility in Redhill that will be used as a reference manufacturing plant for rising customer needs, and to act as a blueprint for licensee manufacturers. The company expects continued revenue growth. The balance sheet remains healthy, with over £71m of net cash, putting the company in a strong position to continue development and investment. Changes to estimates: We update our numbers, lifting revenues (+17% and +26% in FY19E and FY20E) to come into line with the latest update, although we also raise costs as the company is accelerating activities that offsets some of the near term benefit. Our FY19E LBT improves by 1% to -£8.3m and FY20E 7% to -£7.3m. See overleaf for more detail. Our View: A positive update from the company and whilst we have increased certain costs, this reflects an acceleration of activity across the group that we anticipate will support stronger growth in outer years. The underlying macro conditions for Ceres continue to strengthen, as evidenced by the work its partners are moving ahead on. We look toward further updates on progress with existing and potential customers where we hope to see another partner signed up this calendar year. Valuation: We update our forecast and our 10 year DCF that informs our new TP of 300p. Full year results are due for release in early October.
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Ceres Power Initiation, Futura Medical CEO Video, Millennial Lithium CEO Video, AFH Financial, Costain, PayPoint, Travis Perkins, Unite Group, Superdry, SMID Market Highlights
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Three factors are driving interest in Ceres fuel cell technology – the global drive for clean air, concerns about centralised electricity generation, and technology readiness. In this report, we estimate the potential from three key partner markets - data centres, commercial heat/power and bus/truck.
Since hitting a high of 207p in September last year the shares have fallen back to c. 145p, a decline of c. 30%. This compares against declines in the FTSE All-share and UK General Diversified Industrials of c. 3%. Even against a more volatile green/clean tech comp set Ceres shares have underperformed YTD, despite the strong funding position and major commercial developments of last year. The current market capitalisation less estimated net cash values the business as at just c. £150m. This under values a business that raised c. £75m over the last twelve months from commercial customers, that took significant equity stakes, and equity investors. The cash position on the balance sheet is estimated to be enough to fund the development of the business through to commercialisation. There are very few disruptive technology businesses with this level of strength and visibility in its funding position. In unison with the commercial progress, financially the business has seen an improvement with the trading update in early December leading to revenue upgrades on the back of the Bosch and Weichai agreements.
Further to Tuesday’s meaningful update on Weichai, Ceres has provided positive guidance ahead of its H1/FY2019 end. Management anticipates revenue to be at least £7m for the 6 months to 31 December 2018, an increase of 125% over the comparative period. As a result, FY revenue is expected to more than double to £15m, an uplift of £3m to our current forecasts (profit detail below). Similarly, in FY2020E we conservatively anticipate revenue to be £1m higher than our previous forecasts. Underpinning this, Ceres has completed two significant milestones with its new partners, Robert Bosch and Weichai, over the past week, with details discussed below. The Company is also noted to be progressing well with all other OEM partners, with further details expected in due course. Ceres has undergone substantial change over the past twelve months, from both a commercial and financial standpoint. The balance sheet is strong, with c.£70m net cash forecast at FY2019 end following recent equity investments, and we continue to believe that this can support Ceres through to profitability.
Ceres has confirmed that the second tranche of the equity investment from Weichai Power (Weichai) is being made as planned for £28.0m. This takes Weichai’s equity holding up to 20% post a cumulative c. £48.0m investment. The second part of the investment has been triggered by Ceres and Weichai agreeing Joint Venture and License agreements as outlined at the time of the initial Joint Development Agreement (JDA) announced earlier in the year (16 May 2018). Alongside this, today’s JDA outlines the long-term commercial, strategic and financial relationship between the two companies, worth up to £9m to Ceres, and marking the end of a constructive year. The number of JDA OEM partners has increased to six with Weichai and Bosch announced, in line with management’s strategy, and both have made significant strategic equity investments. When combined with c.£20m from existing and new institutional equity investors, gross proceeds raised in the year will be more than £70.0m, leaving the business in a strong financial position. Forecasts are unchanged on today’s announcement, as the full Weichai investment had been accounted for at the time of the initial JDA announcement.
Ceres’ FY2018 results confirm a year of demonstrable strategic headway. The Company has made excellent commercial strides, establishing partnerships with Weichai Power and Bosch, alongside progressing with four existing major OEMs. Revenue and other income for the year grew by 71% to £7m, while Ceres’ contracted order book has grown materially from £3m to £30m. Post year end, the balance sheet has been significantly strengthened via a c.£20m institutional fund raise and a combined £29m of investments from Bosch and Weichai. A continued focus on technical improvement has seen the release of Ceres’ new V5 technology, while its 5kW stack development is well underway, alongside other multi-kW systems. The Board has expressed strong long-term confidence, and the focus remains on securing licence agreements for SteelCell® with Ceres’ six OEM clients within its key target sectors of automotive, data centres and commercial CHP applications. The shorter-term priority is completing the joint venture and licencing agreement with Weichai that will trigger its second equity investment.
In line with the Board’s announced strategy, Ceres Power has today announced that it is investing c. £7.0m in a new manufacturing facility in Redhill, Surrey. The new facility is in close proximity, c.20miles, of the existing Horsham office that will remain the Group’s Headquarters and also the Technical Centre. It is estimated that initial production at Redhill will supply the equivalent to 2 MW of fuel cells per annum increasing to 10 MW when fully operational. The new manufacturing base will fulfil three strategic priorities of meeting existing demand from partners in the development phase, initial commercial launch and proof of concept in terms of large scale manufacturing. No change to forecasts on today’s announcement, capex assumptions relating to the new facility and been included in estimates previously (21st August 2018). We also highlight last Friday’s announcement that Weichai had increased its holding to 10%, in line with its intentions.
Post the Bosch strategic investment on the 21st August we are increasing our forecasts, and price target to 255p and retain Buy rating. Our increased confidence is driven by growing commercial interest in their technology.
Today’s strategic collaboration and licence agreements with Bosch is a very meaningful milestone for Ceres and its SteelCell® technology. Previously an unnamed OEM, the agreements will see both parties further develop Ceres’ fuel cell technology, establish small-volume production, and longer term scale up and mass-production capability. This targets multiple applications Ceres Powerin multi-kW stacks, particularly for use in distributed power. Associated long-term revenue is expected to be material as licence royalties are achieved. Ceres will initially receive c.£20m over the next two years, through technology transfer and joint development work. In addition, Bosch will make a c.£9m equity investment that we believe significantly de-risks the opportunity and brings a high-quality global OEM alongside management’s aspirations. We have updated our P&L and cash flow forecasts in this note on today’s news flow and other recent events. The balance sheet has been greatly strengthened, and we forecast Ceres to be c.£67m net cash by FY2019E end, while the after-tax loss is expected to materially reduce.
Ceres has announced today a new partnership with Nissan to further develop fuel cell technology for EV applications. In addition, Ceres and The Welding Institute (‘TWI’) have been awarded a total of £8m UK government funding through the Advanced Propulsion Centre (‘APC’) for this project. Ceres will receive £7m of this funding. This is undoubtedly positive news and underpins the strength of Ceres’ partnership with Nissan and its interest in the commercialisation of SteelCell® technology. We look to republish forecasts in due course, reflecting today’s news, alongside the recent fundraises, and the share consolidation.
Ceres’ General Meeting on Friday approved of the recent £20m fundraise and the first tranche of £19.4m of Weichai’s strategic investment, both at 15.08p. In addition, shareholders approved a ten for one share consolidation. The Board expressed a confident tone in Ceres’ update on 3 July, underpinned by JDA partnerships with six global OEMs, of which two already have strong intent to go to market via a licencing arrangement. The Company is wellbalanced across its target markets, and following development in recent years it is now active in a range of power applications. Notably, its 5kW cell is experiencing good traction and further investment is earmarked to capture share of very large sectors such as data centres. Elsewhere, Weichai and an unnamed OEM are developing 10kW through to 30kW stacks for automotive and other high-power markets. We place our forecasts under review and look to update them in due course, reflecting the improved momentum in the business, the recent fundraise and associated planned investment, and the share consolidation.
Ceres Power has raised an additional £20m of new equity. This is in addition to the £19.3m raised from Weichai and a further investment from Weichai of £26.3 million, conditional on further commercial agreements. This will increase Weichai holding to 20%. Weichai cash investment has increased to reflect dilution. Ceres has also raised guidance for 2018 and 2018. We retain our 20p price target and Buy rating.
Ceres has announced a very meaningful strategic partnership with and equity investment from Weichai Power. Weichai is listed in both Hong Kong and Shenzen, employs 74k people, and is currently valued at c. $10bn. The agreement includes £40m of equity investment for a 20% equity holding payable in two stages; £17m today at a price of 15.08p and £23.2m later in 2018 at a price of 16.46p, premiums of 18% and 29% to last night’s close respectively. In addition, the agreement provides the potential for significant revenue through engineering services and technology transfer, license and royalty payments, initially in the Chinese electric bus market. Forecasts remain prudently unchanged at this juncture, ahead of the second equity tranche. However, we believe this provides strong commercial validation for Ceres’ SOFC technology, particularly in the automotive sector, and we see scope for material catalysts over the medium term.
Ceres Power Buy (PT 20p) has today announced a significant strategic partnership with China’s Weichai power and a significant equity investment, which if approved, and some milestones are hit, will see Weichai invest c£40m in total and have 20% equity stake in CWR. We retain our Buy rating and 20p price target.
Commercial momentum remains positive in Ceres at the interim. The team has delivered against many of its key targets over the past six months, including securing its fifth partner with a major European manufacturer. Excellent strides have also been made with customer milestones, particularly with Nissan’s EV range extender programme and Cummins, in the development of its larger format SteelCell®. Increasing repeat business has seen sales double to £3.1m and Ceres remains on track to deliver growth of 47% to £6m at FY. Cash of £13.2m results from a £4.1m FC outflow, including increased investment (£0.4m) in manufacturing capacity to meet demand. In this regard, the statement notes that the Board is aiming to secure additional funding by 2018 end. Elsewhere, engagement with potential new partners is very active and management continues to develop its leading technology to address new opportunities in its target sectors. We anticipate significant further headway in H2 and look to positive news flow to support this.
Ceres Power has today made a positive announcement with regard to its technology roadmap, and highlights the significant progress they are making towards commercialisation, in a number of significant markets. We continue to believe that Ceres will provide a crucial piece of the EV (Electric Vehicle) jigsaw, by providing clean charging overnight at home, and also significant benefits to data centres, residential in general, and commercial applications. Retain Buy 20p price target.
Ceres has announced a further Joint Development Agreement (JDA) achieving the milestone it set out to sign five JDAs within two years. The new partner is a European based global OEM and joins Nissan, Honda, Cummins and an unnamed global OEM that already have JDAs in place. The announcement shows a continuation of the commercial development of the business and comes shortly after the release of a pre-close trading update (15th December) confirming the business has had a good H1 and is on track financially. Revenue and other operating income in H118 is expected to be up 80% yoy at c. £3.0m (HY17: £1.6m). FY18 forecasts assumes yoy growth in revenue of c.45% to £6.0m (FY17: £4.1m), indicating the business is on target to at least meet current year estimates. We leave forecasts unchanged, until we get greater detail on today’s announcement, but acknowledge that the JDA agreement should generate revenue in outer years.
Ceres Power continues to show real commercial validation of its technology, and today has signed a new Joint Development Agreement (JDA) with a significant Europeanbased global OEM. Ceres and the new partner will work together to develop prototype multi-kilowatt power systems for several potential applications.
Ceres Power has released a pre-close trading update confirming the business is on track financially, commercially and operationally at the interim stage of the year. Revenue and other operating income in H118 is expected to be up 80% yoy at c. £3.0m (HY17: £1.6m). FY18 forecasts assumes yoy growth in revenue of c.45% to £6.0m (FY17: £4.1m), indicating the business is on track to at least meet current year estimates. The good performance in the early part of the year follows on from the FY17 results which showed the business making material progress yoy. Importantly, Ceres has announced a further Technology Assessment Agreement with a new leading Global OEM as well as stating that it is in the final stages of agreements with other commercial partners. We leave forecasts unchanged but the commercial developments alluded to in today’s statement are a positive indicator for future revenue growth.
Ceres Power reported its results for the year to June 2017. They are slightly ahead of the numbers released at the IMS on the 14th June, with sales, EBITDA and importantly cash held ahead. In the meeting management discussed the opportunity for their residential CHP product to charge electric vehicles(EV). This is an important shift in focus and is additive to the commercial and data centre opportunity. Electric vehicle adoption will place significant demands on electric power generation and presents a significant opportunity for Ceres Power.
Ceres Power’s industry leading solid state fuel cell is now nearing the point of commercialisation, with four major industrial OEMs signed up to work in partnership to develop the technology. Ceres should increasingly be viewed and judged on progress made in monetising its technology with the business benchmarked against financial, commercial and operational milestones as much as technological ones. The efficacy of Ceres’ SteelCellTM has been proven and, whilst still early days in respect of commercial sales, progress is tangible each time Ceres reports. This is evidenced by today’s FY17 results which are materially ahead yoy, and marginally against estimates, and with material commercial progress in the form of two Joint Development Agreements. Revenue of £4.1m was 140% ahead of the £1.7m reported in FY16 and marginally of estimates. Loss at the EBITDA level improved £1.3m to £10.3m and net cash was £17.2m at the end of the year.
Ceres Power issued a trading update yesterday, with revenues ahead of expectations. Revenues are now expected to be close to £4m for year to June 2017. We had £3.3m in our forecasts. We are not changing our 2018 and 2019 estimates at this stage. Cash is expected to be £16m at year end in line with our forecasts. They are confident that they will sign a 5th development partner this year and a 2 . nd go to market customer before end of 2018
Ceres Power issued a trading update this morning upgrading its FY17 total income line by 140% from £1.67m to approaching £4.0m. For Ceres total income aggregates commercial revenue and other operating income, and this significant percentage upgrade has come about due to the outstanding commercial progress made by the company over the last 12 months. With the topline upgrade comes a modest reduction in cash burn, with our FY17 closing net cash position moving from £15.79m to a healthy £16.35m. Our bottom line remains unchanged, reflecting an increase in share based payments and increased investment in the business. In the period Ceres signed its first ‘go to market’ agreement for a micro-combined heat and power (‘micro-CHP’) product in the business sector, as well as development agreements with Honda, Nissan, and Cummins in stationary power, automotive and data centres respectively, and with an existing global OEM partner to enter a new vertical and develop a residential m-CHP product. Management has been executing the Ceres OEM partnering model in multiple vertical markets exceptionally well, and ahead of stated and forecast time frames.
Global population growth and increasing energy usage per capita is driving ever higher demand for energy. Global Electricity demand is expected to double by 2050. The EU needs to reduce its CO2 emissions by 80% if it is to meet its low carbon objectives. We expect these factors to drive all forms of renewables and an increase in demand for energy efficiency. We believe Fuel Cells will be a core part of this landscape in our view along with Solar, wind, efficiency et al.
This morning’s RNS announcement from Ceres Power is excellent news for a number of reasons. Firstly, it strengthens Ceres’s presence in residential combined heat and power (‘CHP’), an evolving global mass market and a primary target market for the company. It is also a market in which Ceres can leverage significant operational knowledge and experience. Secondly, the fact that the global OEM that has entered into the JDA is an existing partner, bodes extremely positively for progress in the other vertical, in which the same OEM partner is already working with Ceres. If things were not going well, then it is highly unlikely the OEM would look to expand its collaborative activity into further verticals. Thirdly, the agreement comes with £0.7m of associated UK government backing through Innovate UK, a welcome albeit modest addition to the top line.
H117 interims highlight the message that Ceres is gaining commercialisation momentum and traction, led by a management team building a reputation for delivery. H117 total income of £1.5m is a 200% YoY increase, and is on target to comfortably meet our £2.8m FY17 forecast. Ceres signed 2 blue-chip OEM partner contracts in the period, bringing the total to 4, with Honda, Nissan, Cummins and a global OEM in several disruptive verticals, including stationary/back-up power, data-centres, automotive, residential micro combined heat and power (‘m-CHP’), and business m-CHP. With a £4.8m order book at Dec 31st 2016, and a strong and growing pipeline of potential OEM partners, including 3 signed evaluation agreements, Ceres is building revenues and reducing cash burn to be on a growth trajectory, which if maintained, takes it through breakeven, into increasing profitability and cash generation. At Dec 31st 2016, Ceres had £22m cash following a successful £20m equity raise in the period, providing runway and balance sheet strength.
The trading update released by Ceres this morning aggregates commercial news flow since the June 2016 year end. It highlights a company gathering real momentum and traction on its commercialisation journey, and a management team strengthening its reputation for delivering on stated commercial objectives. Just pre-Christmas, Ceres announced another large OEM deal, to develop, trial and launch a higher power (5kW-20kW) combined heat and power (‘CHP’) product in the business sector vertical. Due to its timing, this may have slipped through unnoticed to many. Along with Honda, Nissan and Cummins, this deal brought the number of contracted, blue chip OEM partners to 4 in 4 different verticals, keeping Ceres well on track to reach its stated target of 5 by CY17. At Dec 31st 2016, the Ceres order book stood at a healthy £4.8m. With revenue building, and a strong and growing pipeline of further potential OEM partners, including 3 signed evaluation agreements, we are confident Ceres will comfortably deliver our FY17 forecasts. Ceres is successfully executing its innovative platform commercialisation strategy.
Ceres Power has announced a sequence of customer wins during H117, one of which was its first “go-to-market” agreement. This brings the total number of commercial agreements signed in calendar 2016 to four: Cummins, Honda, Nissan and an undisclosed global OEM. These wins have helped generate £1.5m of revenue and other operating income, three times the H116 total. This growth, together with an order book totalling £4.8m at end H117, supports our estimates, which we leave unchanged.
Ceres Power announced this morning that it has signed a joint development license agreement with a blue-chip, global OEM, to develop, field trial and launch a commercial, multi-kW, CHP system with Ceres’s world-class, Steel-cell platform at its core. Due to the commercial sensitivity of the deal, Ceres is not currently free to disclose the identity and geographic location of the OEM partner, or any of the commercial or financial details of the deal. The degree of confidentiality being required by Ceres’s latest OEM partner is an indication of the level of importance being attributed to the agreement by the OEM, and is, in fact, a very positive sign. What can be ascertained, from the limited information in the RNS, is that this is a multi-kW system in a CHP rather than power-only application. The most likely, based on Ceres’s current activity areas and target markets, is 5-20KW system deployed in areas of the commercial world where there is opportunity to use the heat produced. Commercial buildings consume huge amounts of energy, mostly in electricity and natural gas. In the US, the commercial sector alone consumes more than 35% of the country’s generated electricity making it an enormous potential market. This makes the deal entry into another new vertical market for Ceres, the 4th this year, and further hard evidence of the company successfully executing its blue-chip OEM partnering, commercialization strategy. The deal follows-on from OEM partnerships announced in a number of power-only and m-CHP verticals, including Honda, Nissan and Cummins in mobile gen-sets, automotive and data centre power units respectively.
Ceres Power has signed a Joint Development Licence Agreement with a leading global OEM for a multi-kW combined heat and power (CHP) product based on its Steel Cell technology. This is significant as it is the first deal where, subject to successful field trials, the partner has a planned intent to launch. It is also the first partnership targeting the commercial CHP market. The announcement underpins our estimates, which we leave unchanged.
During FY16, Ceres Power has made substantial progress towards achieving its aim of developing a next-generation fuel cell technology that will be cost-competitive with conventional power generation techniques. Recent enhancements to the technology have extended the range of applications where it may be deployed, resulting in the announcement of a succession of partnerships with blue-chips Cummins, Honda and Nissan.
FY16 results are broadly in-line and slightly ahead at EBITDA level - (£11.5m) vs (£12.6m) forecast. FY17 numbers are unchanged and conservative FY18 forecasts are issued. If one or more of Ceres’s OEM partner agreements moves into a full licensing deal, the forecast profile will significantly rise. Ceres is making significant commercialisation progress, announcing deals with OEMs including Honda, Nissan and Cummins and releasing a reduced cost, increased durability platform, with a net electrical efficiency above 50%.
Ceres Power published an RNS reach today informing the market that the latest iteration (version 4) of its SteelCell platform has been released to existing and potential OEM commercialisation partners on time and on budget. The latest platform has increased power density, and delivers over 50% net electrical efficiency in prime ‘power only’ applications. Performance degradation rate, when subjected to 1000s of rapid hot/cold cycles, has been reduced to the point that performance compatibility with vehicle and genset applications is being demonstrated, which is excellent news for OEM partner programs in those markets, including those with Honda & Nissan. Manufacturing cost has also been lowered, with a 20% reduction in processing steps and improved materials utilisation achieved. This next generation platform release is another example of Ceres delivering on its technology roadmap, adding to management’s growing reputation for delivery, further strengthening investor confidence. Exciting core technology innovation and development continues in-house, and we anticipate further improved platform releases going forward. This is another positive announcement from Ceres in what has been an excellent year to date on all fronts for the company.
Ceres Power has announced that Version 4 of its proprietary Steel Cell technology has been successfully released to customers. The significant increase in power density and reduction in the time taken to start-up has extended the potential application from just the residential sector to electric vehicle power trains and distributed power for datacentres and commercial properties. It underpins engagement with blue-chips British Gas, Cummins, Honda and Nissan and our estimates, which we leave unchanged except to reflect the dilutive impact of the September placing.
Last Friday afternoon’s announcement by Ceres Power (‘Ceres’) that the successful £20m equity fundraise has been approved at EGM is excellent news for the company. It is the next key step in the commercialisation of its world-class, Ceres Steel-cell platform into a number of micro combined heat and power (‘m-CHP’) and power-only markets, with blue-chip OEM partners. In recent months Ceres has announced new and extended exciting commercial Joint Development Agreements (‘JDAs’) with Honda in the power products market, Nissan in the automotive market and Cummins in the higher-power module exploding data centre market. These are in addition to existing agreements in a number of residential m-CHP markets. This equity raise strengthens Ceres’s balance sheet, and hence commercial position, in expectation of a number of these agreements being negotiated up to full commercial contracts and subsequent product launches.
Ceres Power has announced that it is to raise £19.3m (net) through a placing at 8.75p/share. The funds are intended to take it through the next phase of commercialisation. Management’s target is to have five global engineering companies as customers in joint development agreements by the end of 2017 to achieve traction in multiple markets in the major regions across the world. Ceres intends to be in two commercial launch programmes by the end of 2018. The existing relationships with Cummins, Honda and Nissan show that it is well on the path to achieving this. The placing is subject to shareholder approval at a general meeting to be held on 14 October, at which point we will update our estimates.
Ceres Power has announced it is working with British Gas on a trial of prototype home power systems in the UK. The programme strengthens Ceres’s presence in this sector, complementing its activities in electric vehicle power trains and higher power systems for data centres and commercial applications. The activity complements recent programmes with other blue-chip partners: Cummins, Honda and Nissan.
Residential m-CHP is an application for which the Ceres platform is very well suited and is most mature. It is an important vertical for the company, and Ceres is already partnered with OEMs in Japan and South Korea for residential m-CHP. The residential m-CHP market has rigorous performance and regulatory barriers to entry, and progression to full ‘in-home’ trials in the UK is a significant and important step; demonstrating an impressive level of technology maturity. The trials are being supported with €600k through the ‘ene.field’ project, the largest European demonstration of the latest, smart, micro-CHP solutions for private homes. The ene.field project is co-funded by the European Commission’s Fuel Cells and Hydrogen Joint Undertaking (‘FCHJU’) and brings together 26 partners, including 9 European manufactures, which will make products available across 11 European countries. Ceres continues to successfully execute its blue-chip OEM partnering commercialization strategy in a growing number of power-only and m-CHP verticals, including Honda, Nissan and Cummins in mobile gen-sets, automotive and data centre power units respectively.
Cummins is a US Fortune 500 engineering giant. It sells in 190 countries, and posted 2015 revenues of $19.1bn. Data centre capacity is exploding in-line with storage demand, driven by the internet of things (‘IoT’). Data centres already account for c.2% of global electricity use - a massive and growing market in need of technology solutions to cut energy use. Fuel cells are one such technology; delivering DC that is more reliable, more efficient, cleaner and cheaper than the grid, and reduces capex. Tech leaders Google, Ebay and Apple all use fuel-cells to power data centres. The high-efficiency Ceres Steel-cell, with its fuel flexibility and load following capability, is a perfect platform for this market. A fact evinced by the Cummins deal, who currently supply back-up gas and diesel engines to a number of data centre customers. As key technology provider, Ceres will receive $2.6m of the $4.9m project value. Following Honda in power systems, and Nissan in automotive, this is another flagship case of Ceres executing its OEM partnering model in a number of CHP and power-only verticals. Ceres is a fine example of worldclass UK IP and innovation commercialising into global growth markets.
This morning Ceres Power revealed Nissan as the ‘global automotive partner’ in the electric vehicle (‘EV’) range extender program it is leading, which was first announced to the market on March 22nd this year, and constitutes further excellent commercial progress. Automotive OEM partner Nissan joins existing Ceres partners Honda in stationary power generation, and KD Navien (Korea’s largest boiler company) in residential micro combined heat and power (‘mCHP’). The announcement demonstrates Ceres’s continued execution of its business model to secure large, blue-chip, OEM commercialization partners for its world-class ‘SteelCell’ platform in a growing number of both CHP and power only vertical markets. The office for low emission vehicles (‘OLEV’) and Innovate UK are providing the funding, and Ceres will receive c. £0.6m. The consortium also includes UK advanced laser machining operator M-Solv.
In March Ceres Power announced it was leading a UK government-backed consortium, including a global automotive company, to trial its Steel Cells with a view to extending the range of electric light commercial vehicles. It has now announced that the automotive company is Nissan, which has recently announced its intention to develop the world’s first solid oxide fuel cell (SOFC) powered vehicle system running on bio-ethanol electric power. The programme takes Ceres into a new sector, complementing its activities in distributed power for residential and commercial properties and data centres.
The funding win announced yesterday is an excellent endorsement of both the Ceres Power (“Ceres”) technology offering and management team. It is also strong evidence of Ceres executing its strategy of positioning itself in a number of micro-CHP, power-only and now vehicle markets, and working with blue chip OEM channel partners in those markets, to extract full value from the true platform nature of its technology. Yesterday Ceres announced that it received £573k of a £772k investment from Innovate UK and the Office for Low Emission Vehicles (“OLEV”) to lead a 3 party consortium, looking at extending the range of electric light commercial vehicles using Ceres’ proprietary Steel cell platform. One of the other two consortium members is another global automotive OEM, following Ceres’ announcement in January this year of Honda as a major joint development partner in power equipment markets. The award announced yesterday was part of a wider, government led, £38m nationwide funding program, to develop solutions to cutting vehicle emissions and enabling plug-in vehicles to drive further.
Ceres Power (‘Ceres’) released 2016 interims today. Numbers are in-line to meet full-year forecasts, and the statement summarises a period of excellent progress. A second Honda joint development agreement (‘JDA’) in the public domain, including a third-party mass manufacturer, and a new global OEM partner evaluating Ceres’s latest, high-efficiency platform for multi kW power applications are real commercial traction. The 10x increase in cell print cycle shows Ceres leveraging the mass manufacturability of its proprietary, ‘Steel cell’ design. Ceres is executing its B2B commercialisation strategy.
During H116 Ceres Power continued to make good progress towards commercialising its Steel Cell technology, which offers a route to economically viable fuel cell-based systems for mass deployment. Noting the intensification of engagement with existing and new partners discussed in the interims, which underpins our revenue growth assumptions, we leave our FY16 and FY17 estimates unchanged.
Ceres Power (“Ceres”) announced this morning the successful completion of a manufacturing scale-up project part funded by innovate UK, which has reduced the ceramic on steel print cycle for its state-of-the-art Steel cell platform by a factor of 10 to 3 seconds a cell. The project was in partnership with ASM Alternative Energy (“ASM AE”), a global leader in solid-state technology screen-printing, and successfully combined established volume processes from the solar industry with the conventional materials set used in the Ceres Steel cell platform. This achievement demonstrates the mass manufacturability of the core cell platform, which was the principal consideration behind its innovative design, and is an important step down the cost curve toward fully competitive, cost per kWh production at scale. This is another excellent operational milestone toward Ceres strategical executing on establishing its Steel cell technology as the platform of choice for future power
Ceres Power (“Ceres”) announced this morning that it has signed an agreement with a global OEM for the evaluation of its Steel cell technology platform. Subject to the platform passing a program of rigorous testing, Ceres and the OEM will enter into a formal joint development agreement (“JDA”) to build a multi kW commercial system. The agreement was made possible by the increased platform efficiency and power density announced in early December 2015. This demonstrates that Ceres now has a technology platform that enables it to execute its commercialization strategy of rolling out across a number of differently sized ‘power-only’ markets, as well as the clear and established fit with residential micro combined heat and power (“m-CHP”).
This morning Ceres Power (“Ceres”) announced it has signed a 2 year joint development agreement (“JDA”) with Honda, the Japanese automotive and engineering giant. This is a second JDA with Honda, and the first time the name has been disclosed. The initial JDA, signed in October 2014 with ‘a leading Japanese power-systems company’, was to co-develop a solid oxide fuel cell (“SOFC”) stack with Ceres technology at its core, for system level testing in Japan and parallel product/market analysis. The new JDA has a third-party mass manufacturer side-agreement, evincing a shift in emphasis from pure tech evaluation to also consider future mass production scale-up. The facts that commercial engagement has been extended and deepened, the partner is Honda, and Honda has agreed to disclosure, are high-quality, material endorsements of the Ceres platform and commercialisation strategy. This also demonstrates management delivering on stated objectives.
Ceres has signed a joint development agreement (JDA) with Honda R&D Co to develop solid oxide fuel cell stacks using Ceres’s patented Steel Cell technology. This follows on from a JDA announced in October 2014. We leave our estimates unchanged, noting that the new agreement presents opportunities to deploy the technology in additional market segments.
This morning’s announcement from Ceres confirms that its latest core cell design release – the ‘V3 Steel Cell’ - has the necessary cost and performance characteristics to open up more of the growing distributed power generation market, forecast to be $200bn by 2020 with fuel cell technology accounting for $40bn. The Ceres platform has long been recognised as an excellent fit for the residential micro combined heat and power (“m-CHP”) market, due to high grade heat utilisation giving overall conversion efficiency of c. 90%. The V3 cell achieves net electrical efficiency of 50% in a 1kW power-only system for the residential market, and can deliver system power densities of 55% when the V3 Steel Cell is incorporated into a larger modular system, which is sufficient to be competitive in higher power, commercial scale, ‘power-only’ applications. This is fantastic news and evidence of Ceres executing its multiple market roll out strategy. Ceres has already had significant early stage interest in Japan, Korea and the US.
Ceres Power (“Ceres”) has proprietary value-engineered technology that facilitates a mass-manufacturable, robust, versatile, high-efficiency energy generation platform across a number of micro distributed energy markets. These include residential micro combined heat and power (“m-CHP”) – mini power stations in homes. Unique core materials, and steel-supported cell design IP differentiates Ceres from solid-oxide fuel-cell (“SOFC”) peers. Ceres has an innovative B2B model, a growing selection of blue-chip roll-out partners in key markets and high-quality, proven management. Partners include a global OEM in Japan, KD Navien in Korea and Cummins in the US. Achievement of commercialisation milestones in partner programs should drive value in the near to medium term, with traction and sales growth driving value then after. 25% of Japan’s forecast residential m-CHP market alone by 2026 makes Ceres a £66m NPV growth business, and value at current levels. Potentially significant value created by global OEM partner activity in further geographic and product markets is free upside with an investment in Ceres.
During FY15 Ceres Power made good progress towards commercialising its Steel Cell technology, which offers a route to economically viable fuel cell-based systems for mass deployment. As FY15 results were in line with our estimates, we leave our FY16 and FY17 forecasts broadly unchanged.
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