Ceres Power Holdings PLC‘s (LON:CWR) manufacturing deal with South Korean fuel cells powerhouse Doosan is a major achievement for the company and “a major advancement in our investment thesis”, say analysts at Berenberg.
The partnership, which makes Doosan the UK company’s third major manufacturing partner along with Germany’s Bosch and China’s Weichai, which “justifies the attractions of Ceres’s licensing and royalty model, validates its technology and increases the likelihood that SteelCell-powered fuel cells will be adopted at scale”.
Under the agreement, Doosan has acquired a global non-exclusive licence to manufacture Ceres’s SteelCell fuel cell stack technology, including a commitment from Doosan to build an initial 50MW mass-manufacturing facility with a go-to-market date of 2024.
With no cost to Ceres, the initial value of the new contract is worth GBP36m to Ceres over three years, with an additional GBP7m contingent on achieving certain performance targets.
When production begins, the deal will be a source of very high-margin royalty revenues to the company, Berenberg’s Anthony Plom said in a note to clients on Monday.
There is scope for Doosan to build out significantly more than 50MW of capacity, Plom said, noting the Korean company is seeking to produce 100kW-plus power systems for utility scale applications.
“This is a new and potentially significant market for Ceres. It remains at an early stage and is therefore currently unaccounted for in our valuation methodology but is a source of upside,” he said.
With this, and several other positive catalysts on the horizon, Berenberg remains “hugely optimistic about the outlook for the business”, reiterating its ‘buy’ recommendation and hiking its share price target to 790p.
The broker said it was leaving its forecasts unchanged at this stage but the price target was lifted on the basis of more optimistic assumptions applied to its valuation methodology as a result of the announcement and the re-rating of comparable companies.
For 2020 the analyst expects GBP32mln of revenue and for 2021 GBP28mln is currently pencilled in, with underlying losses (EBITDA) of GBP13mln this year falling to GBP9mln in the next.