Market news & ceres power interim results

US Markets were lacklustre with only modest changes in the major indices.  In Asia stocks dropped and US futures fluctuated. European futures edged up. Treasuries steadied and Japan's 20-year yield rose to the highest since 2014. The yuan gained after another record fixing by the PBOC.

WTI Oil briefly hit $95, the highest level in more than a year, after a drop in Cushing stockpiles to critical levels highlighted a widening global deficit. Inventories at the largest US storage hub fell just below 22 million barrels.

The SEC is finalizing settlements with about two dozen Wall Street firms to resolve probes into lapses in record keeping, Reuters reported. The agreements are with investment advisers and broker dealers, which would pay fines, admit wrongdoing and commit to fixing the lapses. It marks the latest enforcement action in a two-year crackdown on the use of WhatsApp and other messaging apps, which has already resulted in fines of more than $2.5 billion.

A JPMorgan "options whale" has the potential to add fuel to the US selloff. The $16 billion JPMorgan Hedged Equity Fund holds tens of thousands of puts expiring tomorrow with a strike price not far below the current S&P 500 level. Dealers on the other side of the trade risk ending up with a long stock position, requiring them to deploy short trades in order to get back to neutral.

Fed Member Neel Kashkari told CNN that the Fed may do less if a government shutdown or prolonged UAW strike slows the economy, but there's a risk of more increases should past tightening not have the intended effect. The Minneapolis branch chief spoke in three TV interviews, telling Fox he's open to the possibility of more than one additional rate hike.

Source: Bloomberg

Ceres Power – Interim Results

Ceres Power has today released results for the six months to 30 June 2023.  In response to the announcement, the shares  are modestly lower in early trading.

Ceres is a world-leading developer of electrochemical technologies: fuel cells for power generation, electrolysis for the creation of green hydrogen, and energy storage. The company designs and manufactures steel-based Solid Oxide Fuel Cells (SOFC) which, in very simplistic terms, produce electricity when fuel passes through the fuel cell, via the process of electrolysis. The technology is also truly reversible, able to generate green hydrogen at high efficiencies and low cost.  

The key benefit of the Ceres steel-based version is that it is fuel agnostic and therefore does not require pure hydrogen, instead being able to use everything from biofuels to mains fed natural gas. As well as the efficiency of the Ceres cells – now running at more than 60% electrical efficiency, twice that of conventional gas engines and greater than centralised megawatt-scale gas turbines – the steel-based structure also means they are more affordable, scalable, extremely robust, and able to operate at lower temperatures. The technology can be used in both stationary and transport applications.

Ongoing geopolitical events have highlighted the need for energy security around the world, with governments also under increasing pressure to decarbonise their societies. Hydrogen is now widely acknowledged as an essential part of the route to net zero. We believe Ceres is well placed to benefit as the world’s energy mix moves to a lower carbon future and clean technologies play a strategic role in economic growth.

The group’s asset-lite business model is focused on multi-year development partnerships with global OEMs to jointly develop products using the technology. Ceres receives a license fee for the initial use of the system technology, engineering fees during product development, and royalties upon commercialisation. This strategy allows for broader market reach and generates high margins.

The company currently has licensing agreements and joint development projects with some of the world’s largest engineering and technology companies, such as Weichai Power in China (also a 20% shareholder in Ceres), Bosch in Germany (an 18% shareholder), Miura in Japan, and Doosan in Korea. These cover multiple uses including residential boiler systems, range extenders, data centres, marine transport, and stationary power back-up. The group also has a partnership with Shell to utilise solid oxide electrolyser cell (SOEC) technology to deliver high-efficiency, low-cost green hydrogen.

Revenue increased by 17% to £11.3 million (H1 2022: £9.7 million) and gross profit came in at £6.9 million (H1 2022: £4.7 million), maintaining sector-leading gross margin at 61% (H1 2022: restated to 49%).  "Investment in the future" increased by 19% to £30.6 million (H1 2022: £25.7 million), in line with their strategy to expand into electrolysis for green hydrogen and deliver the next generation of fuel cell technology.  Equity free cash outflow fell by 24% to £21.8m from £28.6m.  The company held cash and investments of £161.2 million as at 30 June 2023 (31 December 2022: £182.3 million).

On strategic development side, Bosch's 'Power Units' have received European funding of ~€160 million as an Important Project of Common European Interest (IPCEI) to support the development and mass production of its solid oxide fuel cell product, utilising Ceres' stack technology.  Building construction for Doosan's 50MW factory in South Korea is now complete.  All machinery and processes have undergone factory acceptance testing, installation is almost complete, and commissioning is on schedule for completion in H2 2024.  Their second-generation design of fuel cell stacks has passed Critical Design Review (a key milestone), which offers improvements in performance and cost for SOFC partners.

The first-of-a-kind megawatt-scale electrolyser is undergoing commissioning and initial testing at AVL in Germany, in preparation for deployment at the end of this year to Shell's R&D centre in Bangalore, India, in line with the timetable set out in the 28 June 2022 announcement.  A two-year collaboration with Linde Engineering and Bosch has been signed to validate the performance, cost, and operational functionality of Ceres' electrolyser technology, which starts next year.

In term of their current trading and outlook, as previously announced, given the continued delay of signing the China JVs with Bosch and Weichai, as well as taking into account time needed for regulatory clearances, we do not expect revenue associated with these to be recognised this year and full-year growth against the prior year is subject to the timing of securing new licensees.

Phil Caldwell, Chief Executive Officer of Ceres said: "We are at an important stage of the Company's growth as we support our partners to scale manufacture for our existing fuel cell business, and make rapid progress in the development of our game-changing electrolyser technology, which will enable new partnerships to address the huge market opportunity for green hydrogen.  Our recent inclusion in the FTSE250 index and the recognition for engineering innovation of the MacRobert Award have been made possible by the progress of the Company, and the hard work the team has put into maturing the Ceres technology over many years."

Source: Bloomberg