This British Clean-Energy Developer Is Making Big Bets
Europe’s urgent rush for new energy sources since Russia invaded Ukraine is creating a wide range of investment opportunities, including some intriguing speculative plays.
Clean-energy developer Ceres Power Holdings (ticker: CWR.UK) has created fuel-cell technology that produces low-cost green energy, and which it licenses to partners such as Germany’s Bosch, China’s Weichai, and South Korea’s Doosan. These companies manufacture and sell this technology.
This intellectual property has mass-market potential and was set to generate even more fees this year. But negotiations with partners of a China joint venture have been delayed until next year, the company said. The loss-making U.K.-based company has said that means those earnings won’t appear until next year.
The delay disappointed investors. The stock has fallen 68.9% to 3.41 pounds sterling ($4.04) over the past 12 months and could present a buying opportunity because, as Panumure Gordon analyst Lacie Midgley says, “there is no change to the long-term investment case or timeline to recurring, high-margin royalty fees in 2024” from the rolling over of license fees.
What makes the case for Ceres as a buying opportunity is the patented technologies partners use to make machines to generate power. The production process is more efficient than the traditional gas technology typically used to generate electricity. The company’s fuel cells are powerful enough to power ships or large houses, but are too big and heavy for vehicles or aircraft at the moment.
Second, this process can be reversed, providing a second revenue stream producing hydrogen using the same kit. But the commercialization of this solid oxide electrolyser technology is less advanced. Ceres, however, has struck a partnership with Shell to produce low-cost green hydrogen. Ceres has mitigated the cost of production, and associated inflationary pressures, by licensing its technology to partners instead of manufacturing it themselves.
The timing for the technology is good because President Joe Biden’s Inflation Reduction Act incorporates tax credits to support green hydrogen production for the next decade.
Berenberg analyst James Carmichael cites Biden’s bill as a positive, and forecasts the stock could rise 310% to £15.60. While Ceres doesn’t yet have a partner with a U.S. license, it considers it an important market to target, with any potential partner benefiting from the tax credits. “Any short-term weakness related to timing of the license fee is an opportunity,” Carmichael wrote in a note. He has a Buy rating on the stock.
The company has a market valuation of more than £650 million. It is focused on investing in research and development and gaining market share, and doesn’t make a profit. It posted a loss before taxes of £24.1 million for the six months through June 2022, much wider than the £7.1 million loss for the same six months the year before. Revenue was £9.9 million for the six months, less than the £17 million for the six months to the end of June 2021.
This past week’s COP27 climate summit “has illustrated once again that the transition to cleaner energy has never been so important to the way we live,” Ceres CEO Phil Caldwell told Barron’s. Ceres’ role as a developer of clean-energy technology will “allow companies to decarbonize at scale and pace, which means we are well-positioned to help make that a reality.”
A further catalyst for the stock will be its commitment to move from London’s junior Alternative Investment Market to the London Stock Exchange , which will raise its profile and trigger its inclusion in a broader portfolio of funds. This is likely to happen next year.