Interactive Investor

Market reaction to Ceres Power and IOG results

17th March 2022 15:32

Graeme Evans from interactive investor

Russia's invasion of Ukraine has brought the issue of energy security to the fore. It's why results from these two popular stocks have been closely watched. 

Warming investors to the themes of energy security and the transition to net zero continues to be a challenge judging by results-day share price falls for Ceres Power (LSE:CWR) and IOG (LSE:IOG) today.

Imperial College spin-out Ceres fell 4% and is down by over a fifth this year, despite the optimism of the fuel cell and green hydrogen technology company following partnerships with giants such as Bosch of Germany and Doosan in Korea.

IOG’s results were delivered in the week that the low carbon operator produced the first gas from its Blythe and Elgood fields in the southern North Sea. IOG shares have doubled in the past year but are down by 10% this week and by 2.8p to 37.7p today.

Global volatility and the need for energy independence has boosted the profile of Ceres, IOG and others like ITM Power (LSE:ITM) and EQTEC (LSE:EQT) in recent weeks, although valuations in the sector have been held back by rising costs and expectations for higher interest rates.

Ceres chief executive Phil Caldwell has worked in the industry for almost 20 years and believes that demand for hydrogen and fuel cell technologies has never been as great.

He said: “We need a different energy landscape and Ceres' purpose to deliver technology that enables a clean and efficient energy future is absolutely aligned with that goal.”

Caldwell added it was no coincidence that Ceres' first commercial partnerships have been in locations with more progressive targets around climate action and ambitious plans for deployment of fuel cell and hydrogen technologies.

The company’s electrochemical technologies are used to develop fuel cells for power generation, electrolysis for the creation of green hydrogen and for energy storage.

Based on an asset-light licensing model, it has been able to establish partnerships with engineering giants that also include Weichai in China and Miura in Japan.

Revenues for 2021 rose 44% to £31.7 million, while underlying losses in the fuel cell business nearly halved to £4.5 million. There is £250 million of cash on the balance sheet to support growth into electrolysis for the production of green hydrogen.

Analysts at Berenberg said 2021 marked a year of good progress and that 2022 prospects should be boosted by an increasingly favourable market backdrop for hydrogen.

They said: “We believe that Ceres’s licensing and royalty model derisks the scale-up challenges potentially experienced by manufacturing peers, but this revenue model only works if the company has world class, defensible technology and strong partnerships.

“We think that Ceres has both. Its industry-leading SteelCell technology is protected by numerous mechanisms (eg patents) and its partners like Bosch, Weichai and Doosan are truly global, blue-chip companies with deep pockets and manufacturing expertise.”

The broker’s support for the stock is shown in a price target of 1,560p, which compares with 743p this afternoon.

Today’s results from IOG celebrated its journey from an unfunded micro-cap to full-blown producer after its Saturn Banks project delivered the first gas to the Bacton terminal for onward sale.

The fields have been developed through a joint venture partnership with CalEnergy Resources, which is part of Berkshire Hathaway Energy. IOG is a net zero operator through a low carbon intensity operating model, which also highlights the economic and environmental advantages over pipeline and LNG imports.

IOG said: “We can now start to reap the benefits of our strategic focus on UK gas, which has always had compelling economic logic: the UK remains highly dependent on this commodity that will be pivotal in the global energy transition.

“Phase 1 production gives IOG both the operational platform and the financial capacity to deliver incremental value for our shareholders.”

Post-tax losses narrowed to £4.3 million, with the company reporting cash balances of £34.7 million at the end of last year compared with £80.4 million in 2020.

Shares were at 37.7p today but analysts at Peel Hunt had a price target of 82p after this week’s first delivery of gas. They said: “With wholesale prices for gas at historically high levels the timing could not be much better.

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