Interactive Investor

Insider: bosses buy Ceres Power shares and this FTSE 100 giant

The clean energy firm had generated huge profits for investors, but it’s fallen on hard times. Now directors are busy buying shares at knockdown prices. There’s also been a big purchase at the UK’s eighth-largest company.

5th February 2024 08:45

Graeme Evans from interactive investor

Two directors of Ceres Power Holdings (LSE:CWR) have backed the clean energy firm’s recovery potential by spending £75,000 on shares at a big discount to City price targets.

Board chair Warren Finegold and non-executive Karen Bomba bought at between 225p and 230p, shortly after shares fell 15% on a setback for the company’s plans in China.

Ceres had been as high as 700p during 2022’s energy crisis and 384p in September, when the former Imperial College spin-out secured promotion to the FTSE 250 index.

The success has been built on an asset-light licensing model, which has allowed Ceres to focus on its strengths in electrochemical technology while achieving scale through strategic collaborations with world-leading partners such as Bosch, Doosan and Shell.

Its solid oxide platform technology supports greater electrification of energy systems, and produces green hydrogen at high-efficiencies as a way to decarbonise emissions-intensive industries such as steelmaking, cement and future fuels.

The company’s most recent partnership is with Taiwan’s Delta Electronics, a leader in mass manufacturing, power electronics and data centres for customers including Microsoft.

The collaboration, which is expected to generate revenues of £43 million, came too late to save the company’s FTSE 250 status after the deal took place outside the 2023 financial year.

Annual revenues in results due on 20 March will now be broadly flat at around £21-£22 million, but with the gross margin slightly higher at around 60%.

The biggest upside surprise in the recent trading update concerned the balance sheet position after net cash of £140 million came in well above broker Peel Hunt’s forecast of £117 million.

Chief executive Phil Caldwell also highlighted a growing pipeline of opportunities, fuelling speculation in the City that another licensing deal could be done during this year.

Offsetting this optimism, the company warned that a joint venture with Bosch and Weichai will not go ahead in its previously proposed form. It is now working with Weichai to find other ways to address the China market.

Meanwhile, the launch of commercial fuel cell systems by Bosch and Doosan has taken longer than planned and initial royalties are not expected until 2025.

Despite these setbacks, the company continues to enjoy strong support in the City. Peel Hunt reiterated its 550p target price following the trading update while house broker Berenberg sees an upside to 800p compared with its earlier position of 925p.

Liberum lowered its price target to 500p, having cut its 2024 estimates due to the loss of revenues and earnings from the China joint venture.

However, the City firm added: “We assert that while financials matter, showing positive commercial progression is more important for Ceres at this stage than the precise timing of near-term revenue and earnings.

“The group is well-funded and the recent dual licence agreement with Delta for both fuel cell and electrolysers in our view reaffirmed Ceres’ ability to win new significant commercial licence partners.”

Last week’s £45,150 purchase by Finegold, who became chair in 2020, has tripled his Ceres stake to 30,000 shares. The investment of £27,965 by Bomba was her first since joining the board last summer.

A healthy future for GSK?

Boardroom purchases of GSK (LSE:GSK) shares in the wake of last week’s well-received results included one worth £306,000 by the drugs company’s finance boss Julie Brown.

The other was an investment of £55,000 involving Sir Jonathan Symonds, the former AstraZeneca and Novartis chief financial officer who was appointed GSK chair in 2019.

Their purchases took place on Thursday at levels of 1,582.8p and 1,570.6p respectively, compared with Friday’s close of 1,611.2p and 1,537p at the start of the week.

The shares were 1,700p in August 2022 before the disclosure of US litigation on heartburn drug Zantac. The company last week reached a confidential settlement on a case in California but did not admit liability and said it would vigorously defend itself in other Zantac cases.

UBS noted that a hearing is expected in Delaware in the second quarter, adding that a positive ruling would remove the majority of the remaining litigation.

Highlights from Wednesday’s results included the fourth-quarter performance of respiratory syncytial virus vaccine Arexvy, which received US approval in the autumn and has boosted prospects for the current year.

The company also updated guidance for 2031 sales by £5 billion to more than £38 billion.

Jefferies, which has a price target of 1,900p, said: “We are well above consensus 2026 forecasts and believe long-acting HIV injectables, vaccines, and new pipeline launches mean profits likely face a "blip" not a “cliff” on 2028 HIV patent expiries.

“We argue given this underappreciated growth profile, the shares offer attractive risk-reward ahead of potential Zantac class action settlement.”

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