Ceres Power (LON:CWR) has announced a further Joint Development Agreement (JDA) achieving the milestone it set out to sign five JDAs within two years. The new partner is a European based global OEM and joins Nissan, Honda, Cummins and an unnamed global OEM that already have JDAs in place. The announcement shows a continuation of the commercial development of the business and comes shortly after the release of a pre-close trading update (15th December) confirming the business has had a good H1 and is on track financially. Revenue and other operating income in H118 is expected to be up 80% yoy at c. £3.0m (HY17: £1.6m). FY18 forecasts assumes yoy growth in revenue of c.45% to £6.0m (FY17: £4.1m), indicating the business is on target to at least meet current year estimates. We leave forecasts unchanged, until we get greater detail on today’s announcement, but acknowledge that the JDA agreement should generate revenue in outer years.
Positive commercial progress as the business achieves its stated short-term milestones: Today’s announcement shows that Ceres is continuing to move forward commercially and has hit the target it set less than two years ago of signing five JDAs. Today’s announcement relates to a European based global OEM. Ceres will work closely with its new partner to develop prototype multi-kilowatt power systems for several commercial applications. The next step could potentially mean collaboration to produce a joint system, Solid Oxide Fuel Cell development and manufacturing. We would stress that today’s JDA is in addition to the Technology Assessment Agreement with a different global OEM announced at the time of the trading update in December.
Financial performance mirrors the positive commercial progression with the business having made a good start to FY18: FY17 results showed revenue increasing 140% to £4.1m resulting in a better than expected performance in the EBITDA loss of £10.3m, a £1.2m improvement on FY16. The trading statement in mid-December indicates that the business has continued to move forward with c. £3.0m of revenue in the first half of FY18. With the potential for further positive news flow in H2 confidence in current FY18 revenue forecasts of £6.0m is increasing. Today’s announcement should lead to further to additional revenue in outer years.
Balance sheet remains solid: At the end of FY17 Ceres had £17.2m of net cash on its balance sheet, post the c.£20.0m fund raising from new and existing shareholders in October of last year. The good financial performance in H1 underpins our current year forecast of net cash of £7.9m forecast for the end of FY18.
