For years, the potential of renewable energy company Ceres Power (LSE: CWR) has been obvious, its innovative fuel cell technology could yet form the basis of a very large business. But while the Ceres Power share price has grown by more than half in the last five years, it has lost around 80% of its value over the past three.
With a trading update issued today (24 January), I decided to revisit the investment case. Has anything changed that might make this a good moment to add the company to my portfolio?
Flat revenue, but a big new contract
The statement said that revenue was in line with previous guidance, at £21m—£22m. But that means it is flat, or slightly worse, compared to the prior year.
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Promisingly, the company announced last week it signed a fuel cell and electrolysis license with Delta Electronics. That is set to include staged revenues of £43 million for Ceres through technology transfer and licensing. Around half of that should be recognised as revenue this year.
That is roughly equivalent to the firm’s entire revenues last year, so I see it as positive news for the Ceres Power share price. The company said it expects at least to double its revenues this year.
Significant disappointment
Elsewhere though, the statement contained less welcome news. Referring to the company’s much-touted deals with Bosch and Doosan, for example, it said: “The launch of commercial fuel cell systems is now expected to take longer, with initial royalties anticipated from 2025 onwards”.
That is bad news on the revenue front. It could also point to bigger problems with the company rolling out its technology on a commercial scale. I think that could hurt the shares.
Even worse, the company said its long-discussed China joint venture “is unlikely to be completed in its current form”. This was a risk that had long concerned me and again underlines the relatively unproven nature of Ceres’ commercial model.
The company noted it is evaluating other options to address the market opportunity in China. I see this as a damaging development for the investment case.
Indeed, the Ceres Power share price has slumped around 17% in early trading, as I write.
Tempting, but also disconcerting
The technology Ceres has developed has long been the part of its investment case that attracts me. This latest large deal with Delta is further proof of concept. I continue to be attracted by the firm’s technology and the commercial potential it offers in years to come.
But I think the commercial model is yet to be proven. Developing technology is one thing, but finding a way to make and sell it profitably is quite another.
If Ceres can do that, delivering strong revenue growth, a better pathway to profitability, and a plan to widen its customer base, I think the shares could potentially recover lost ground this year.
For now though, I think the business still has a lot to prove. I will not consider investing currently, despite the Ceres Power share price falling so much in recent years.
