Analysts see upside in Ceres Power share price

Ceres Power’s share price has had a boost this year as investors return to clean energy stocks following last year’s sell-off. Despite the company not being profitable, analysts at Berenberg and Peel Hunt are eyeing price targets that would see a significant return for shareholders.

Ceres Power’s [CWR] share price is up 7.6% so far this year, closing Friday 17 March at 378.4p. However, the stock of the AIM-listed maker of hydrogen fuel cells has been on a downward trend of late, having shed over 24% since 3 February. Over the 12-month timeframe, the CWR share price losses extend to over 48%.

Much of the damage can be attributed to investors ditching growth stocks last year. According to our thematic screener, the clean energy investment theme has declined 11.88% over the year. With the market for hydrogen cells predicted to grow rapidly this decade, will the CWR share price benefit?

Ceres partners up

Ceres Power makes fuel cells for power generation and electrolysers for green hydrogen. The company was on the shortlist for the Financial Times Tech Champions of 2022, with the paper noting that Ceres’ hydrogen solutions could reduce maritime carbon emissions by up to 47%.

In early March, RFC Power announced that it had gone into partnership with Ceres to accelerate the development of its flow battery technology. As part of the deal, Ceres increased its stake in RFC Power and has an option to buy outstanding share capital in the company in 2024.

At the end of February, Ceres welcomed the launch of a stationary solid oxide fuel cell system— which uses its technology—by its Chinese partner Weichai.

Berenberg pins 1,560p target on Ceres share price

Ceres Power posted revenues of £21m for 2022, down 34% from the previous year and in line with consensus. Cash burn is a concern. At the end of 2022, Ceres had £182m in cash and short-term investments, down from £250m. Yet this beat consensus expectations of £155m and Berenberg’s expected £180m.

“[Ceres] remains our favoured hydrogen-focused name due to its differentiated technology, high-margin licence and royalty business model, and likely near-term catalyst when signing of the China JVs is confirmed. We reiterate our ‘buy’ rating,” analysts from Berenberg said in a research note.

Berenberg has a 1,560.0p target price on the stock, which would see a hefty 312% upside on Friday’s close. Peel Hunt reiterated its 650p price target on Ceres in a research note issued in February. While not as bullish as Berenberg, Peel Hunt’s price target would see a near 72% upside.

Ceres Power looks to benefit from growing hydrogen market

The global market for hydrogen fuel cells hit $6.6bn in 2021, according to a report from BCC Research. The market is forecast to grow from $7.5bn in 2022 to $19.5bn by 2027, at a compound annual growth rate of 21.0% during 2022-27. Ceres Power could be well-positioned to benefit from this growth, although investors might be in for a bumpy ride until the company can turn a profit.

Ceres Power’s revenue is expected to grow 137.4% to £51.39m by the end of 2023. But the fuel cell maker is predicted to make a loss of 22.28p a share that year, according to data from Yahoo Finance.

Credit Suisse [CS] highlighted the potential of CWR, Smurfit Kappa Group [SMFKY] and DS Smith [SMDS.L], as it said around €550bn of European state aid funding could be unlocked by the EU’s 'Green Deal' plan. Its analysts have an ‘outperform’ rating on Ceres Power’s stock and believe the company is among those with “most material exposure” to the plan.

One thing that could hold Ceres Power back is Britain’s energy grid. In February, the company shelved plans to develop a new power development centre after being told that it would take seven years to connect to the grid, at a cost of up to £15m. “If we want to create high-growth companies, it is not just access to skilled people, we also need the right infrastructure to match the pace of our growth,” the company said.

Ceres Power has a median 12-month price target of 808p. Hitting this would see a 113.5% upside on Friday’s price.