Ceres Power Holdings seems to be on a roll following its decision back in the day to change its business model. For the second year running it has seen its revenues leap. This time revenue and other operating income for the year ended 30 June 2019 are, according to a trading update released on 9 July 2019, likely to more than double since income for this period is predicted to be £16.5 million a 135 per cent increase on the £7m earned in 2017/18 and comfortably ahead of analysts’ expectations. This stellar progress is due to the comapny making deals to supply Ceres proprietary technology to original equipment manufacturers (OEMS) to develop power systems on an industrial scale.
A surge in revenue growth has not always been part of Ceres’s story. The SteelCell is a fuel cell that has a solid electrolyte (SOFC). The alternative to this is the proton exchange membrane (PEM). Cells like the latter with their liquid electrolytes are harder to manage. Of the two, the SOFC is slightly more efficient (~ 60 per cent). Another interesting feature of the SteelCell is that it can run on a variety of fuels, including hydrogen, methane and biogas.
Some ten years ago Ceres Power concentrated on using the fuel cell to design and make what they thought were ground-breaking combined heat and power boilers (CHP) for homes and small to medium sized businesses (SMEs). This business model did not work and in 2014 the company decided to change direction with the new strategy of forming partnerships with OEMs.
This new game plan took some time to get going, but by early 2018 five such partnerships had been agreed. They included big vehicle makers like Nissan and Honda. The trading update outlined that there had been four new significant developments with OEMS in 2018/19.
Ceres Power has set up partnerships which supply power systems of all kinds
including charging points for electric cars
First, there was the Bosch Collaboration and Licence Agreement (with initial value to Ceres in 2020 of circa £20m) and equity investment of £9m.
Second, Weichai Power completed a total equity investment in Ceres of £48m and additional Licence and JV Agreements with staged technology transfer payments worth c£30m and a Joint Development Agreement of £9m.
Third, a first product launch: Miura Co. Ltd, Japan’s largest industrial boiler company, agreed to use Ceres SteelCell in a CHP product launch for use in commercial premises in Japan.
Fourth, there is continued investment in growing the business including a new £8m manufacturing facility in Redhill, UK as a reference plant both to serve the company’s growing customer needs and also to act as a blueprint model for licencee manufacturing partners.
All this explains the revenue growth. Perhaps the only very small non-positive note predicted is the company remains loss making. Losses before tax are predicted to be £8.3m, a fall from the -£11m achieved in 2016/17. But, any concerns about losses are offset by the £71m of cash in the bank.
Commenting on the trading update CEO Philip Caldwell said that 2018-19 has been a transformational year for Ceres and more growth is expected going forward. Broker Investec seemed surprised by the revenue figures saying it was expecting £14m. It has updated its forecasts slightly but says it believes another OEM will be signed up soon and forecasts revenues of £20m in 2019/20. It has also reset its target price (TP) for the shares at 300p. Last evening shares in the £273.87m market cap company were 180 pence against a 52-week high of 207p and a low of 130p.
