Analysts calculated that the last closing share price of 517p implied the group will reach circa £200mln in sales by 2035 – “however, we think it could be 5x higher”
Ceres Power Holdings PLC (AIM:CWR, OTC:CPWHF) confirmation of a China joint venture with Weichai on Wednesday was “much-anticipated” and the deal exceeded prior expectations, according to Berenberg.
The addition of Bosch to the partnership increases the probability of long-term success in the region “substantially”, the investment bank said, with the twin China joint ventures highlighting the “beauty of Ceres’s licensing model” in requiring limited upfront capital costs for a pipeline of future high-margin royalties.
What’s more, there are “few better validations” than Bosch and Weichai putting hundreds of millions towards scaling the technology, said Berenberg in a note, reiterating its ‘buy’ rating and 1,560p share price target.
Giving some background to the deal and the “significant” opportunity for fuel cell technology in China, the bank’s analysts noted that Ceres had been working with Weichai towards a JV in the region to address transportation applications since 2018.
In 2021, the scope of the JV was extended to stationary power applications too and this morning came news that Bosch will also join the two companies in developing this China opportunity as part of a three-way system JV will be formed (of Weichai, Bosch and Ceres) alongside a two-way stack JV (of Bosch and Weichai, with Ceres getting royalties).
As part of the stack JV, Bosch and Weichai will build a fuel cell stack manufacturing plant in China, using Ceres’s core SteelCell solid oxide fuel cell technology.
This will be the third committed manufacturing facility producing Ceres’s core SteelCell technology, following Bosch’s in Germany and Doosan’s in South Korea.
These stacks will then be sold into the system JV, which will be led by Weichai. The system JV will also build a manufacturing plant, where it will then incorporate those stacks into the final products for mobile and stationary applications.
With Ceres receiving upfront licence fees of £30mln over the next three years from the formation of the stack and system JVs, Berenberg expects that to be followed by royalty fees once the sale of stacks begins via the stack JV and from the sale of systems via the system JV.
Some of the royalties from the systems JV will be shared with Bosch as both companies pool their IP.
Overall, Berenberg’s $50-100/kW royalty assumptions are unchanged, with Ceres only expected to commit around £20mln to the system JV, according to company guidance.
“We expect greater clarity in the coming months following the signing of definitive contracts between all parties but we assume that manufacturing (and therefore Ceres’s royalty revenues) will commence in around 2025,” the analysts said in the note, calculating that 200MW of initial manufacturing scope as a “prudent assessment” based on Ceres’s capital commitments.
“However, we know that both Weichai and Bosch have far larger ambitions.”
Berenberg calculates that the share price, which closes at 517p on Tuesday, implies that the group will reach circa £200mln in sales by 2035.
“However, we think it could be 5x higher,” the note read.
Source: Proactive Investor
Read the most up to date Fuel Cell and Hydrogen Industry news at FuelCellsWorks
