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Ceres Power’s share price downbeat on £10m H1 revenue forecast

Image of a solid oxide fuel cell used in the Chinese EV market

With the Ceres Power [CWR] share price having halved so far in 2022, shareholders will be hopeful that the company’s interim half-year results announcement on 22 September will begin to brighten its outlook.

Shares in the group, which develops fuel cell technology for highly efficient fuel and hydrogen electricity generation, have slumped 50.4% year-to-date (through 20 September) as investors continue to shift their attention away from high-growth tech shares.

The company licenses its fuel cell technology to manufacturing partners Bosch and Doosan, and generates royalties when stacks and systems are sold. This business model has allowed Ceres Power to run an asset-light and high-margin operation.

Despite the promising implications of its innovative business model, the stock has fallen out of favour with investors. The company, which incurred a £20.6m loss in 2021, has suffered as the valuations of tech companies have been reconsidered in the last few months. At market close on 16 September, the Ceres Power share price was trading 5.8% above the 52-week low while sitting a considerable 60.8% below the 52-week high.

Ceres Power forecasts revenue decline

In a trading update at the end of July, Ceres Power noted that revenue for the six months to 30 June is expected to sit around £10m. This is a considerable 42.5% decline from the £17.4m in revenue that was seen in the first half of 2021.

On a more promising note, cash and short-term investments were approximately £221m at the end of June. With the company trading with a market capitalisation of £929.7m as of 20 September, the sizeable cash load gives it a cash-to-market-cap ratio of 23.8%, suggesting a good level of financial stability.

While no half-year profit expectations were released in Julys trading update, it is expected that the group failed to turn a profit in the first six months of the year. Despite its total loss of £20.6m in 2021, the company spent over £31m on research and development as it aimed to continue improving its technology.

Full-year 2022 earnings are expected to improve slightly from those of 2021. According to estimates reported by Ceres power, there will be a full-year loss of approximately £19.4m, while revenue is estimated to rise to £35.5m from the £31.5m reported for 2021.

Analysts upbeat as expansion targets come into view

In February 2022, Ceres revealed it had entered a three-way collaboration with Weichai and Bosch to tap into the growing demand for fuel cell technology in China. In the companys annual report, it noted that it could be the largest market for our technology as China addresses its goal towards a low-carbon future”.

China is not the only area of expansion for the company. At the beginning of 2021, the group decided to further potentiate its revenue by producing green hydrogen using electrolysis. In its 2021 annual report, it announced a commitment of £100m to develop electrolysers and a successful fundraising effort of £179m from public markets to fund its expansion into this potentially lucrative space.

There are already early signs that the hydrogen expansion has been a positive move for Ceres Power. At the end of June, the company reported it had signed an agreement with Shell to deliver low-cost hydrogen with its solid oxide electrolyser technology. While the testing phase will run for at least three years, it is a positive sign that Ceres can develop commercially viable technology in the sector.

As a result, analysts are upbeat over Ceres Power shares. Out of seven analysts polled by the Financial Times, five rated the shares a buy’ and two expected the shares to outperform. From nine analysts giving 12-month price forecasts, there was a median target of 1,200p, which represents a 138.6% upside on the shares’ 16 September closing price.

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