Monday, 24 February 2020

Ceres Power - Portfolio Addition


Having had some rewarding returns from my recent acquisitions which focus on hydrogen - AFC Energy, ITM Power and Proton Power - I have been looking for opportunities to diversify my holdings.

Ceres Power 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.

It holds the LSE Green Economy mark awarded to listed companies that derive at least 50% of revenues from products or services that contribute to the global green economy.

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.

solid oxide fuel cell

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.

Expansion

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. Other partners include China's engines giant Weichai Power who hold a 20% equity stake and Japan car maker Honda. The proceeds of £38m will enable Ceres to expand into high power applications and diversify its existing technology into new areas including green hydrogen.

The company has licence agreements signed up with four of the world's largest engineering and power companies.

The deal with Bosch has obviously had a positive impact for the share price which has strengthened by over 40% in recent weeks and broke through 500p before falling back.

Huge Potential

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. Here's a recent article from Proactive Investors.

Ceres are growing quickly and have doubled revenues in each of the last four years. However, they are yet to convert the potential into profits for shareholders. For the last full year to June 2019 the loss was -£4.8m compared to a loss of -£9.9m the previous year. The company will publish interim results for the 6 month period to end December on 16th March.

6m chart v ITM Power (click to enlarge)

The share price has recently retreated from its all-time high point of 520p. The markets have tracked south today spooked by the spread of the coronavirus which has caused a sharp downturn in global equities. Equities may well experience further weakness in the coming days/weeks however I picked up my initial holding for my ISA at the price of 427p and will look to add on any further price weakness.

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!

3 comments:

  1. one problem that I have with investing in companies like Ceres is that there is huge potential - and huge potential that you back the wrong horse in the race.
    The flip side is that once a winner is clear, the share price has already risen so much that you have lost out on all the potential gains.

    One silver lining is that the recent coronavirus slump has pulled prices back to make it a good entry point for Ceres or ITM and other growth companies.
    I had considered investing in Ceres at about 22p a share - and that was only last year. :(
    Thanks for posting

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    Replies
    1. Yes, I am not sure which, if any of my four hydrogen holdings will deliver on their undoubted potential. They seem to be flavour of the month but that could easily change if another technology comes along which proves to be more efficient so it's certainly a gamble and no profits to-date.

      You would have done well to pick up ITM at 22p last year... currently 130p!!

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  2. sorry - ITM at 22p last year.
    Although, I did hear a presentation from Ceres back in 2018 and was very impressed

    ReplyDelete