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Ceres Power (LSE:CWR) has been another AIM listed darling of the fuel cell/green pie in the sky sector. Over the past few years it has raised £65 million to fund its dreams but the dream is now a nightmare. There are some who think that this company still has £10 million and is worth something. They are wrong as I shall explain below. The shares have collapsed to 2.205p but my target price is 0p.
The company stated on 4th October that:
Following recent announcements regarding Ceres’ funding requirements, the Company announces that, despite extensive efforts it has been unsuccessful in securing sufficient funding for the business going forward. The Company will continue to explore all strategic options including a sale of the business, cancellation of the listing and in the absence of any alternative proposals commencement of an orderly wind down of the business. A further announcement will be made in due course.
The bull case is that following a series of bullish announcements over the summer (notably 26th July, “Commercialisation Programme remains on track) the technology must be worth something and that as at 30th June the company had £10.2 million of cash. Back in the real world….
I note that when, on 30th March, Ceres publishing its results for the six months to 31st December it had current liabilities (trade payables) of c£2.9 million. You kind of suspect that a) Ceres did not rush to pay them by the end of June b) those folks will have seen the statement and if they have not been paid until now they will be round next week with a baseball bat. I also note that net cash was £18.6 million as at 31st December. So £8.4 million ( shall we say £1.4 million a month) went to money heaven in the six months to June 30th.
Hence extrapolating onwards we might assume that three months cashburn plus creditors demanding full payment would have net real cash down to sub £3 million as of today. And my guess is that give the mess the business is clearly in, it is not actually writing any new business of a serious nature and so that £3 million will be pretty much gone by late November, earlier if Ceres is forced to pay off some of its long term liabilities..
So what are the options? Given that Ceres is still years ( and vast cash investment needed ) from generating a profit if it ever does and that anyone buying the operating units would take on vast commitments (staff, etc, etc) I cannot see anyone paying a bean for it. At best someone may take the operating units on as a going concern for £1,.That will take some time to happen, legal fees will be mammoth and so the PLC will be left as a shell with sod all cash. That is the best case scenario. The worst case scenario is that no-one wishes to buy the operating units at which point, at some stage in the next eight weeks Ceres goes bust.
If I had any interest at all in this green shit, I would wait for the demise of Ceres and then see if I could do a deal with the administrator to buy the technology ( but without the staff and other committed costs) for peanuts.
I note that Andrew Shepherd-Barron at Peel Hunt said there was effectively no value for shareholders and cut his target price from 4p to zero following the announcement. That analysis is spot on. I see some BB loons are buying the shares on the basis that there is £10 million cash there. There is not. At 2.205p the market cap is £1.88 million. Not for long.
I am sure you are right about the current valuation.
Having lost money in this company I think you are missing a much wider point. Small investors should not invest in tech companies until they have a marketable product, fully proven and accepted by industry.
There have been a long list of promising tech companies that have failed to achieve take off.
Green shit it was not–whether you believe in global warming or not–this technology offered potential savings for consumers. Lets hope Imperial College–who lost a lot of money in this company–learn the lesson. There is an enormous gap between a promising technology and a successful product.
John Comber,
Imperial didn’t lose on this they raked it in, selling out their founder stock when the price was something like 300p. They made somewhere in the region of £5-8 million, as shown in the annual reports of listed company Imperial Innovations