Ceres Power Holdings PLC

Ceres Power Holdings PLC is an FTSE AIM UK 50 Index listed UK based fuel cell technology and engineering company.

Rationale for Valuation – SELL at GBX 1,110.00

• The operating loss had widened from negative £7.17 million during H1 FY20 to negative £7.61 million for H1 FY21.
• All major profitability metrics remained in the negative territory from last three years (H1 FY19 to H1 FY21), while the respective industry median remained positive.
• The worldwide energy crunch had pushed the stock price, which may decline in the near term.
• The free cash outflow witnessed an increase during H1 FY21 when compared with H1 FY20.
• From a technical standpoint, CWR’s stock price is trading between the upper Bollinger band and the middle Bollinger band, reflecting a bearish price momentum.

Key Risks

• There is still a comparatively slow shift towards the use of clean energy, which could delay or slow the growth of the company.
• Moreover, if the Company is unable to start the projects with safety precautions with unexpected quality and over budget constraints, it would result in the project execution risk and might face a regulatory investigation.
• The Covid-19 pandemic may cause a delay in the execution of projects.

H1 FY21 Interim Results (for the six months ended 30 June 2021 as of 30 September 2021)

(Source: LSE Website)

• The revenue grew by around 93% during H1 FY21.
• On the profitability front, the gross margin had slightly reduced from 79.5% during H1 FY20 to 71.6% for H1 FY21.
• The order book of the company stood at £42.0 million, with a pipeline of £43.8 million at the end of H1FY21.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative)

Conclusion 

CWR 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.

However, the stock price recently surged due to the global energy crisis and breached the target price as recommended in the recent coverage. Thus, it would be advisable for the clients to book profit at the current levels, considering the current market volatility and inflation fears prevailing. The stock made a 52-week High and Low of GBX 1,626.00 and GBX 632.00, respectively.

Considering the weak profitability and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Ceres Power Holdings PLC at the closing market price of GBX 1,110.00 (as on 14 October 2021).

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

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

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