Today’s strategic collaboration and licence agreements with Bosch is a very meaningful milestone for Ceres Power Holdings plc (LON:CWR) and its SteelCell® technology. Previously an unnamed OEM, the agreements will see both parties further develop Ceres’ fuel cell technology, establish small-volume production, and longer term scale up and mass-production capability. This targets multiple applications in multi-kW stacks, particularly for use in distributed power. Associated long-term revenue is expected to be material as licence royalties are achieved. Ceres will initially receive c.£20m over the next two years, through technology transfer and joint development work. In addition, Bosch will make a c.£9m equity investment that we believe significantly de-risks the opportunity and brings a high-quality global OEM alongside management’s aspirations. We have updated our P&L and cash flow forecasts in this note on today’s news flow and other recent events. The balance sheet has been greatly strengthened, and we forecast Ceres to be c.£67m net cash by FY2019E end, while the after-tax loss is expected to materially reduce.
Bosch, an excellent partner – Bosch is a leading global supplier of technology and services. Today it has signed a strategic collaboration with Ceres that will build on the unique SteelCell® technology and this will combine respective expertise in fuel cells, manufacturing and product development. Initial focus will be on development of the technology for use in small power stations to be used in cities, factories and data centres, as well as charge points for electric vehicles, supported by small-volume production. Longer term we expect to see scale up and mass manufacture capabilities, particularly in 10kW system applications, that should drive material royalty revenues for Ceres.
Forecasts updated – Our FY2019E sales have increased from £8m previously to £12m off the back of this and earlier announcements and we have included a first look estimate of the FY2020E total revenue at £15m. This trend continues the strong double-digit growth realised in recent years. The associated loss after tax improves by £0.4m in FY2019E to £7.7m, inclusive of increased commercial investment, and we then expect a reduced loss to £6.0m in FY2020E. Our capex assumptions increase from £2m to £8m in both FY2019E and FY2020E, due to the investment in Ceres’ new manufacturing facility. Our cash flow assumes c.£74m of inflow from fundraises.
Positive momentum across the business – Ceres is engaged with six OEM partners at the development stage: Bosch, Nissan, Cummins, Honda, Weichai, and an unnamed OEM. The relationship with Weichai, announced in May, has been a very exciting addition, while Ceres also recently announced a new partnership agreement with Nissan to develop fuel cells for electric vehicle applications through UK government funding from the Advanced Propulsion Centre (“APC”).