Ceres Power (LSE: CWR) burst into life on the London Stock Exchange Monday (28 July). The clean energy stock finished the session 44% higher, taking the one-month return above 80%!
What’s caused this epic jump? And with the stock still 90% off a 2021 peak, might it be time for investors to consider getting involved?
Milestone announcement
Ceres creates innovative solid oxide fuel cell and electrolyser technology for use in clean power generation and green hydrogen production. Applications include artificial intelligence (AI) data centres, industrial buildings, electricity grid stabilisation, and marine power (as a cleaner alternative for ships).
What I like here is that the company operates a technology licensing model. As Ceres puts it: “Using our intellectual property (IP) and trade secrets, we accelerate our partners’ entry into global decarbonisation opportunities. As we build a portfolio of manufacturing partnerships, our asset-light business model underpins our strong financial position”.
This has started to bear fruit, as yesterday marked a major milestone for the company. It announced that strategic partner Doosan Fuel Cell has started mass production of fuel cell stacks in South Korea using Ceres’ technology. These will power clean energy systems in fast-growing markets like AI data centres, which are mushrooming globally as the AI revolution gathers pace.
Doosan Fuel Cell anticipates the first sale by the end of the year. Crucially, this will mean Ceres starts earning its first royalty revenues. And this is the exciting development that’s sent the stock surging.
Improving financials
The company’s been developing its internet protocol (IP) for a couple of decades now. Revenue’s gone from £15.3m in 2019 to £51.9m last year.
Given that commercialisation is only just getting underway, it’s no surprise that Ceres remains unprofitable at this stage. Last year, it lost £28.3m. This lack of profitability is the biggest risk here, as the business model isn’t yet proven.
However, it’s worth noting that the loss last year was down significantly from the previous two years. And analysts forecast less red ink moving forward. In other words, the City doesn’t see ballooning losses on the horizon, and if royalty streams start flowing in regularly, the economics of the business could improve quickly.
At the end of 2024, Ceres had a net cash position of around £102m, providing a decent buffer to support its growth plans. That figure makes up around a third of the company’s £285m market-cap.
Is Ceres a buy for me?
Is this a hidden gem at 151p? It may well be if the company’s other partners also soon start producing and commercialising clean energy systems.
Ceres operates a non-exclusive licensing model, which has allowed it to partner with Delta Electronics in Taiwan, Japan’s Denso, China’s Weichai Power, and Thermax in India. The long-term decarbonisation opportunity across Asia’s simply enormous.
Looking ahead, I fully expect the UK firm to secure more licence partners, and therefore make progress towards profitability. The value of its IP may be very underappreciated right now.
Therefore, adventurous investors looking for a renewable energy stock might want to consider Ceres at 143p. As for me, I’m going to put it on my watchlist and wait for the company’s first-half results which are due in September.
