Cracking news from Ceres Power – a potential 10 bagger follow up

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We included Ceres Power in our Jul magazine edition feature (click here – – page16) entitled 5 potential 10 baggers – a risky stock no doubt but, in our opinion, one of the stocks most likely to have the shorter odds in achieving the fabled 10 fold return. Today’s RNS shortens these odds further.

Highlights – 

New agreement for UK and Netherlands consumer field trials 

British Gas and Itho-Daalderop to purchase 174 micro-CHP units

EUR2.4 million funding via the European Commission’s 7(th) Framework Programme – final approval shortly to be granted

Significant improvements in degradation rates now achieved at micro-CHP product level 

On-track to deliver the required commercial product performance requirements

Planned technology developments set to deliver further improvements

Flagship UK and Benelux commercial product launch programme remains on track to deliver the mass volume low cost micro-CHP for 2H 2016

Independent review by Booz & Company and AEA Technology confirms low-cost capability of the Ceres micro-CHP product design

Independent review of Ceres core fuel cell technology by a globally recognised SOFC expert commissioned

Successful implementation of planned cost reduction programme delivering annualised savings of at least GBP3m

GBP10.2m in net cash at 30(th) June 2012 

Important takes – with the appointment of Investec as broker recently, and the succession of positive anouncements, it seems that the planned fund raising for the Company is imminent. British Gas are likely to underpin this, particularly given the announcement this morning in which their support for the Company clearly remains. The key aspect of the fund raising for us is – are management, and in particular David Pummell, going to participate and also paticipate meaningfully? If they are, then in SBM’s opinion, you should follwo their lead and Buy – do not leverage this position though as it is likely to be a volatile ride and, in any event, given the current market cap, it’s unlikely you wll find a spreadbet or CFD provide who will provide margin on this stock.

There has been a persistent seller of the stock that has driven the shares down from 10p to 4p over the last few months – obviously an insitution that wants out .This party seems to be having an effect on the potential fund raising price – watch the volume today/tomorrow – anything north of 2m is likely to imply he is nearing the end of his holding to go.

This line from David Pummell is particularly significant for the ultimate commerciality of the product – 

Ceres can now confirm operation of a micro-CHP product on natural gas with degradation rates approaching those achieved at cell stack level (1% per 1000 hours).”

Similarly, this is significant as we can now get a handle on costs and likely profit margins – 

“An independent review conducted by Booz & Company, in conjunction with AEA Technology, has confirmed the low-cost capability of the Ceres micro-CHP product design for launch in 2016. Based on quotations from the Company’s supply chain partners and applying cost-down experience curves for similar mass volume technology products, the independent review validated the variable cost estimates of Ceres 1kW CHP product to be circa GBP2,500 and circa GBP1,750 at volumes of 20k and 100k per annum respectively (this includes the fuel cell stack of circa GBP380 and circa GBP250 for the same volumes). The Board is confident that Ceres low cost micro-CHP design can secure significant market share from conventional condensing boilers and offer consumers an attractive payback.”

“… it is predicted that the annual FIT will go up from GBP350 to GBP436, on top of the predicted annual energy cost savings of GBP286.”

That implies an annual £722 saving on energy costs for the typical consumer – depending on the final sale price, a potential 5 year pay back on the cost of the boiler – proper commercial underpinning and as further evidenced by the statement below –

The increase in the FIT follows comments by Greg Barker, Minister of State for Climate Change earlier in the year, in which he signalled his intent to use policy measures such as the FIT to “jumpstart” micro-CHP, and indicated that he shared the ambition for 1 million micro-CHP units installed in the U.K. by 2020(2). If Ceres can capture 30% of this at a £1000 GPM that’s £300m of potential gross profit for the company. Current market cap – just under £5m….


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