If there’s one thing the energy transition keeps teaching investors, it’s that the tortoise often has the better innings than the hare.
Ceres Power has never been the flashiest name in clean tech, but its steady progress toward commercial scale in solid oxide fuel cells (SOFCs) suggests the quiet ones can still surprise.
The company’s latest presentation to analysts laid out a refreshed strategy focused on three straightforward aims: signing new manufacturing licence agreements, speeding up its partners’ progress, and honing its single-stack fuel cell technology.
It sounds simple enough, but behind that clarity sits a business now reshaped for its next stage of growth.
Second and better
The SOFC industry has effectively become a two-horse race between Bloom Energy and Ceres.
Bloom had first-mover advantage and has already begun supplying its systems to data centres, where the power-hungry cloud operators are desperate for cleaner and more reliable electricity. Ceres, by contrast, wants to be ‘second and better’ – its words, not ours.
Rather than compete head-on in manufacturing, Ceres licenses its fuel cell design, the ‘stack’, to partners such as Doosan and Delta Electronics.
The Prime Minister and the Chancellor toured Cares Power’s production facilities in Surrey in 2023, alongside chief technical officer Caroline Hargrove (right) and CEO Phil Caldwell (left).
The model echoes that of chip designer Arm Holdings: develop world-class intellectual property, then let bigger partners do the heavy lifting of production and distribution.
It’s a capital-light approach that spares shareholders the cost of building gigafactories, though it does mean the company relies on others to bring products to market.
Still, that trade-off has appeal. Ceres gets exposure to multiple markets and partners without having to bet the farm on one in-house rollout. Management admitted that visibility into those partners’ sales pipelines is limited, but the investment levels seen so far offer some reassurance that commercialisation is moving forward.
Three priorities
The first priority is signing new licence agreements, which remain the main source of revenue. Royalties will not become meaningful until closer to 2030, so management’s focus is squarely on adding new partners.
The second is helping existing licensees reach scale faster – a form of hand-holding that, if successful, widens the pool of future royalty income.
Finally, Ceres continues to refine its single-stack fuel cell, improving durability and performance while reducing costs. Dual-stack innovation, which aimed to combine fuel cell and electrolyser functions, has been shelved for now to keep efforts concentrated.
This renewed focus follows a wider internal shake-up. Over the next year, Ceres plans to tighten its cost base, embed new ways of working, and put more emphasis on sales and marketing.
The company will also launch a dual-purpose stack that serves both power generation and hydrogen production, a move expected to reduce cash burn once development spending tapers off.
Transforming the model
Ceres’ capital-light licensing approach has always been its main differentiator. It allows high gross margins and avoids the need for repeated equity raises. According to Panmure Liberum, the group’s overheads are falling and should not rise significantly with new licence wins – giving it the sort of operating leverage most manufacturers can only dream of.
There’s also a hint of optionality in its recent takeover of RFC Power, a developer of long-duration energy storage systems. Ceres had previously written down its 24.2 per cent stake in RFC to zero after doubts about its viability, but in October it assumed full control, apparently for a nominal sum. If the underlying flow-battery technology proves useful, it could add another string to Ceres’ licensing bow.
The numbers
For all the technological promise, the financials still read like those of a company in transition. Sales are expected to fall from £52million last year to £31million in 2025 before rebounding to £65million in 2026. The group remains loss-making, with an estimated pre-tax loss of £35.7million this year.
That said, the balance sheet is robust. Ceres ended 2024 with more than £100million of cash and is forecast to retain over £50million by 2027. Analysts do not expect it to need further equity raises before reaching profitability.
Panmure Liberum’s discounted cash flow model supports a fair value of 250p per share, implying modest upside from the current 232p. The broker keeps its buy recommendation, arguing that the risks now look ‘skewed to the upside’.
Caution and conviction
Investors should keep a few caveats in mind. The licensing model limits control over sales timing and revenue visibility, and the company is still a long way from sustainable profit. Partner delays or technology hiccups could easily push out milestones.
But there’s a growing sense that Ceres’ disciplined pivot (trimming costs, tightening focus and letting others build the factories) is the right one. With the global build-out of data centres showing no sign of slowing, demand for efficient on-site power will only increase.
After years of cautious development, Ceres now looks ready to turn its technology into a commercial business. For patient investors, that could be worth the wait.
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