Having had some rewarding returns from my holdings which focus on hydrogen such as AFC Energy and ITM Power, I decided to add Ceres Power to my portfolio earlier this year. Timing is not my strong point and the shares slumped from my purchase price of 427p down to 260p in March but have since seen a strong recovery and reached an all-time high point of 630p in July.
Ceres is another AIM-listed company. It is a world leader in low cost, next generation fuel cell technology which can facilitate the transition to zero-carbon emissions. The technology can be used in a variety of applications - transport, industry, data centres and home heating.
Fuel cell technology is already a core component of energy strategies in Japan, Korea, Germany and the US. Ceres are working with global leaders such as Bosch to embed their technology in mass market products. The stationary global fuel-cell market is estimated to be worth over $40bn by 2030.
In November 2019, the company announced its first zero-emission combined heat and power system designed exclusively for use with hydrogen fuel. The system can operate on all forms of hydrogen but the CHP technology running on hydrogen from renewables such as wind/solar offers a solution to tackling climate change and air pollution.
In January 2020, German engineering giant Bosch increased its holding in Ceres from 4% to 18% citing their steel fuel cell technology as potentially the best in the business. Bosch say the market for the fuel-cell power station could be worth €20bn by 2030. Other partners include China's engines giant Weichai Power who hold a 20% equity stake.
The company has licence agreements signed up with four of the world's largest engineering and power companies including Japan's Miura and Doosan of S. Korea who are a global leader in the stationary fuel-cell market.
The company has today released results for the full year to end June 2020 (link via Investegate).
Ceres is growing quickly. Generating income of just under £1m in 2015, they have increased revenues significantly in recent years. Over the past 12 months revenues increased by 21% to £19.9m (2019 £16.4m). Obviously the Covid-19 pandemic has impacted over the last quarter however the full onsite team returned in May and a record number of units were produced and shipped to customers in June.
However, although growing rapidly, they are yet to convert the potential into profits for shareholders. For the last full year to June 2020 the loss was -£6.5m compared to a loss of -£5.9m the previous year. This is partly due to increased investment into electrolysis and the manufacture of green hydrogen.
The company has a strong balance sheet with no debt and cash in the bank of £108 million.
Commenting on the results, CEO Phil Caldwell said:
"The urgency for climate action continues to drive the global demand for clean energy technologies, and our strategy of licensing to global partners, with a leading position in their products and markets, continues to be highly successful. "Despite the disruption from Covid we have delivered a solid set of results, with continued revenue growth and sector leading margins. This is driven by good progress with our customer programmes and increased manufacturing output thanks to the hard work of the entire Ceres team.
"Trading since the period end has remained strong with good commercial progress with our partners globally. Bosch has now installed prototype products of its 10kW system utilising Ceres' technology at five locations in Germany while, despite an initial delay in the early part of 2020 due to the pandemic, good progress is now being made to validate Ceres' technology for transportation applications with Weichai's SOFC team in China.
"These developments, combined with the opportunities from our new, long term growth areas of electrolysis for hydrogen, mean that Ceres is very well positioned to build on the strong momentum generated during the period as we look to play our part in delivering clean energy technology to enable a net zero future."
Whilst there are many companies in the proton membrane fuel cell sector, global companies are signing up solely with Ceres in the solid-oxide fuel cell department where the company is a global market leader.
The company doesn't want to focus on fuel cell manufacturing but rather a technology licensing company working closely with a range of partners who are looking to adapt their business' and address the huge challenges posed by climate change.
Analysts at Berenberg have likened the companies licensing model to ARM Holdings whose RISC technology became the default during the smartphone revolution of the past decade. The broker suggests they could reach 40% to 50% operating margins and generate revenues of £800m each year from licensing agreements with their partners over the coming decade.
|Share Price past 12 months|
I picked up my initial holding for my ISA at the price of 427p and the current price has taken a dip following the results and stands at 540p which gives a market cap. of £950m. I will look to add on any further price weakness in the coming months.
As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!