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Ceres Power Holdings plc: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Ceres Power adds Bosch to growing list of big name partners

Ceres has signed five collaboration deals in two years
Honda car
INVESTMENT OVERVIEW: CWR The Big Picture
Honda is one of two big names from the Japanese car industry that is working with Ceres

Ceres Power Holdings Plc (LON:CWR) has added another impressive name to its roster of collaborative partners.

Technology and electricals firm Bosch will work with Ceres to develop its SteelCell technology, with the German firm also to invest £9mln in the AIM-listed business.

WATCH: Ceres Power reveals strategic collaboration with leading tech firm Bosch

The companies have already been working together for several months through an initial agreement announced in January, however, Bosch was not named at the time for confidentiality reasons.

Bosch joins Weichai Power, Nissan, Honda and Cummins, which are already on the list of Ceres's blue chip partners.

Ceres highlighted that the Bosch agreements set out “very significant” staged revenues through technology transfer, licensing and longer-term royalties.

The initial value is seen around £20mln, by 2020.

Bosch will also subscribe for 5.97mln new Ceres shares at a price of 150.8p.

It will give the German partner a 4.4% stake.

Quality partners

Phil Caldwell, cheif executive, said the objective was to partner with the world’s best and 'companies don’t get much better than Bosch'.

The two companies will develop what are effectively decentralised power stations that will use modular 10kw power units to run data centres, office blocks, electric vehicle charging outlets and so on.

In itself that is a fantastic opportunity, says Caldwell, but Bosch also gives Ceres an opportunity to benefit from its engineering and technological capability and supply chain and manufacturing strength.

Fifth collaboration

It is the fifth co-development agreement signed by Ceres in two years and is similar in structure to a strategic collaboration in May with Weichai Power, one of China’s leading automobile and equipment manufacturing companies.

That involved Weichai pumping £19.3mln into Ceres in return for a 10% stake at a price of 150.8p a pop - the shares were recently consolidated on a ten-into-one basis.

The price paid by Weichai proved attractive to others as well, enabling the company to raise an additional £20mln in July through a conditional placing and share subscription.

Meanwhile, Weichai has agreed on a further investment of £26.3mln, conditional on the signing of further commercial agreements, to increase its holding to 20% by the end of November this year.

The funds are earmarked to provide working capital to fund the business through to commercial launches with original equipment manufacturers from 2021 and to finance a new manufacturing facility in the UK to provide near-term capacity for the next three to five years.

Nissan progress and a £7mln injection

More recently, in early August, Ceres announced it would receive £7mln in funding to continue work its work with Nissan on electric vehicle applications.

The cash is coming from UK government funding, through the Advanced Propulsion Centre (APC), being carried out in partnership with Nissan and The Welding Institute.

It builds on the successful joint development with Japanese car giant Nissan over the past two years and sees Ceres Power accelerating commercialisation of its SteelCell fuel cell technology in automotive markets.

SteelCell technology is poised to benefit from the growth in fuel cell demand

Ceres’s core SteelCell technology overcomes two problems traditionally associated with other solid oxide fuel cells, namely cost, and lack of robustness.

SteelCell can use a variety of fuels - natural gas, hydrogen, biofuel - that can be manufactured from widely available materials, and is inherently the most cost-effective solution on the market.

“This scalability is Ceres’s key competitive advantage, in our view,” broker Berenberg said.

Berenberg believes the development partnerships and the impending commercial launches go hand-in-hand in helping profitability in the short-term, while drastically increasing the probability that the SteelCell will be commercially viable in the long-term.

A UK rarity

“We are a rarity,” Caldwell said, “A very high growth British tech company.”

“Commercially, no -one can dispute we have some of the world’s best partners committing to this tech.

“We also have two major strategic investors on board alongside very strong institutional support.

“Our OEM partners see the potential and huge market applications.”

Revenue is on a rising trend

The technology is still in the development stage but Ceres is not without revenues.

The directors expect revenue and other operating income for the year to June 30, 2018, will be in the region of £7mln, up 70% or so year-on-year.

The board is confident that the company can maintain this trend of strong revenue growth as it secures more technology transfer and licence revenues in addition to its current engineering services and 2019 revenues are expected to be ahead of current market expectations.

The order book at the beginning of July 2018 was £5.1mln, up from £3.2mln last year, and the company said it had a strong commercial pipeline with several opportunities at an advanced stage, including a potential substantial grant award.

“The next year will be extremely exciting for Ceres Power, as it expects field trials to start across a number of applications: 5kW commercial CHP [combined heat & power] with its confidential customer starting later this year, the first 30kW system being run on a bus in China with its new partner Weichai in 2019, and it expects 10kW power-only systems to start being trialled later in 2019,” the company said in tis trading update.

Berenberg had a price target of 20p before the consolidation, which is the equivalent of 200p now.

Shares rose 10% to 165p on the Bosch announcement.

 

 

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