Ceres Power Holdings PLC (LON: CWR)

Ceres Power Holdings PLC is an FTSE AIM UK 50 Index listed UK based company. It is a fuel cell technology and engineering company that is engaged in the development and commercialization of its fuel cell technology. Moreover, CWR's SteelCell technology is focused on the automotive sector. Meanwhile, the subsidiaries include Ceres Power Ltd, Ceres Intellectual Property Company Ltd and Ceres Power Intermediate Holdings Ltd.

Growth Prospects

• Rising Demand for Clean Energy: As pollution across the globe increases, the demand for clean energy is also increasing. The rise is especially significant in the industrial and transportation where the majority of the company have pledged to zero carbon emission, thus increasing the demand for clean energy resources even further. It is expected, by 2050, hydrogen could meet 18% of global final energy demand and potential US$2.5 trillion markets for hydrogen gas and electrolysis equipment.
• Global Partners: The Company has a strategy of licensing with global partners, with a leading position in the products and markets.

(Source: Company’s presentation)

• Resilient Performance Despite Covid-19 Restrictions: The Company delivered solid financial performance despite the disruption from Covid-19, with continued revenue growth and sector-leading margins.
• Fund Raising to Boost Growth: Fundraising will consolidate position in SOFC and accelerate activity in key new areas such as electrolysis for green hydrogen and expansion of the power systems business into new applications and markets.

Key Risks 

• Disruptive Technology: The company faces the consistent risk of such technological advancements, which could make the present technology obsolete.
• Gradual Shift Towards Clean Energy: There is still a comparatively slow shift towards the use of clean energy, which could delay or slow the growth of the company.
• High Competition: As the demand for clean energy increases, new and well-established players could enter the segment, and if the company fails to create a solid platform for itself, it could lose market share.
  

Now we will analyse some key fundamental and shareholders statistics of Ceres Power Holdings PLC.

Financial and Operational Highlights (for the six months ended 30 June 2021 as of 30 September 2021)

(Source: LSE Website)

• Robust Top-line Business: Driven by strong progress of commercial partnerships, revenue and other income went up by around 96% to £17.4 million.
• Strong Growth in Gross Profit: CWR had increased gross profit to £12.2 million during H1 FY21 (H1 2020: £7.1m) at a sector-leading gross margin of 72%
• Decent Order Book: The order book of the company stood at £42.0 million and pipeline of £43.8 million at the end of H1FY21.
• Investment from Bosch: Bosch will invest €400 million into its solid oxide fuel cell (SOFC) business between now and 2024.  It also plans to put up to 100 small-scale stationary fuel cell power plants into operation this year

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 12 October 2021, at 8:04 AM GMT+1, CWR’s shares were trading at GBX 965.00, down by 2.13% against the previous day closing price. Stock 52-week High and Low were GBX 1,626.00 and GBX 630.00, respectively.

On a daily chart, CWR's price is sustaining between the middle and lower Bollinger bands. Hence, there could be an uptick in the stock price in the near term. Moreover, the 14-days RSI of ~30.31 approaches oversold territory, indicating an upside momentum in the stock price.

In the last two years, CWR’s stock has delivered an excellent positive return of ~352.68%. Also, it has outperformed the FTSE All-Share Oil, Gas & Coal index with a return of negative 21.65% and the FTSE AIM UK 50 index with a return of about 32.66%.

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Business Outlook

CWR delivered an excellent performance in H1 FY21, with revenue rising 96% YoY. The company maintains the best gross profit margins in the industry. CWR has almost zero leverage, with a debt/equity ratio of 0.04x, indicating financial flexibility to raise further debt, if required, at a cheaper cost to fund its capital investments. The company remains on track to achieve revenue in line with consensus estimates of £31.5 million for FY21. The Company established a growing business in fuel cell power, and through the successful equity fundraising, they are now addressing the potentially even greater market for electrolysis for green hydrogen. 

Considering the Company’s expansion to green hydrogen market, its partnerships, its continued investments, the better liquidity and leverage position of the business than the industry, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Ceres Power Holdings Plc at the current price of GBX 965.00 (as on 12 October 2021 at 8:04 AM GMT+1), with lower-double digit upside potential based on 71.94x EV/NTM Sales (approx.) on FY21E sales (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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