Ceres Power (LON:CWR) Since hitting a high of 207p in September last year the shares have fallen back to c. 145p, a decline of c. 30%. This compares against declines in the FTSE All-share and UK General Diversified Industrials of c. 3%. Even against a more volatile green/clean tech comp set Ceres shares have underperformed YTD, despite the strong funding position and major commercial developments of last year. The current market capitalisation less estimated net cash values the business as at just c. £150m. This under values a business that raised c. £75m over the last twelve months from commercial customers, that took significant equity stakes, and equity investors. The cash position on the balance sheet is estimated to be enough to fund the development of the business through to commercialisation. There are very few disruptive technology businesses with this level of strength and visibility in its funding position. In unison with the commercial progress, financially the business has seen an improvement with the trading update in early December leading to revenue upgrades on the back of the Bosch and Weichai agreements.
Commercial progression materially stepped up in 2018: In early January Ceres announced a fifth JDA partner achieving a milestone set out two years previously. This was followed in May by the Weichai partnership agreement and equity investment, taking the number of JDAs to six. The conversion of Bosch, a highly regarded, conservative OEM into a named partner was an important milestone perceptually. The technology transfer agreement will see Ceres receive £20.0m over two years as it works in partnership to develop its technology, establish small-volume production and longer-term mass-production capability. Bosch also made a £9.0m equity investment into Ceres. In October, Ceres announced a £7.0m investment into a new manufacturing facility to take the business on the next level in terms of commercialisation. Once completed, it will prove the economic model of large-scale production.
Financial progress has been building over the last four years: Revenue, excluding grant income has more than doubled in each of the last four years, assuming the ZC forecast of £13.0m is achieved in FY19. The uplift has been on the back of the increase in the number of JDAs and their development. ZC FY20 revenue estimate of £14.0m looks conservative when set against the historic performance, the c. £50.0m outlined for staged technology transfer payments from Weichai (£30.0m) and Bosch (£20.0m) and the £30.0m order book announced at the end of FY18. The net cash position estimate of c. £70.0m at the year-end provides investors with a great deal of confidence in Ceres’ ability to fund development through to commercialisation.