Plug into fuel cells for a profits boost
EASTER is supposed to be a time of optimism but many businesses are suffering from Brexitisis – a condition caused by prolonged exposure to the hapless wrangling between Westminster and the EU.
One notable exception to this corporate angst is Ceres Power, a fast-growing fuel cell firm based in West Sussex.
Ceres boss Phil Caldwell is not waiting for Government Ministers to reach trade deals with other countries. He is already working with some of the biggest companies in China, Japan and the US, as well as Bosch in Germany.
The shares are £1.75 and should rise in value as the business develops and gains news customers. Caldwell is extremely ambitious too. Today, Ceres is valued on the stock market at £265million but Caldwell is determined to take that valuation to more than £1billion over the next few years. Caldwell’s belief in his company’s potential is not just a pipe-dream. Fuel cells have been around for years but they have struggled to become accepted because many use expensive materials, such as platinum, and they need hydrogen to function.
Ceres Power fuel cells are different because they are made from ordinary steel and they can use hydrogen or natural gas to generate electricity and heat. That makes them more cost-effective and practical than conventional fuel cells but equally good at doing the job.
And that job is increasingly important. Normally, fuel – such as oil, gas or coal – is burned to produce energy and that energy is distributed from power stations via the grid. Fuel cells do not involve combustion, so they avoid greenhouse gas emissions and they generate power on site, so they can be up to twice as efficient as the grid.
As governments become increasingly exercised about climate change and pollution, fuel cells are increasingly in demand.
Ceres’ particular brand of fuel cell was invented by the late Professor Brian Steele, a pioneer in the field, working at Imperial College in London. The group’s technology has improved steadily over the years and today its SteelCell is recognised as one of the most advanced fuel cell systems in the world.
When Caldwell became chief executive in 2013, Ceres was focused on the domestic market, trying to design, make and sell products for the home. The approach was laborious, time-consuming and gobbled up cash so Caldwell switched strategy. He focused on the commercial market and looked to develop partnerships with other businesses or license the Ceres technology to them.
This has worked wonders. Bosch is using Ceres technology to develop fuel cells that can be used in local power stations, factories, data centres and charge points for electric vehicles.
Last year too, Caldwell signed an agreement with Weichai Power, one of the largest bus and truck companies in China. The firm intends to put Ceres SteelCells into hybrid electric buses so they can travel up to 375 miles without needing to recharge, compared to around 120 miles on batteries alone.
A prototype is being launched later this year and the technology should be rolled out across Weichai’s fleet next year and beyond. Further ahead, Weichai and others are likely to use Ceres cells in trucks and lorries too. Politicians around the world are determined to phase out combustion engine vehicles and fuel cells are ideally suited to long distance travel.
Both Bosch and Weichai have made serious financial commitments to Ceres, providing tens of millions of pounds to the business through a combination of share purchases, licensing deals and joint ventures.
Caldwell has also signed agreements with carmakers Nissan and Honda and Cummins, an American engine manufacturer with operations around the world and a stock market valuation of $26billion (£20billion). New deals are expected to emerge this year, further endorsement of Ceres’ world-beating technology.
In 2016, Ceres delivered revenues of £1.7million. By last year, the figure had increased to £6.3million and for the 12 months to June, brokers expect a more than doubling of revenues to £14million, rising to £23million by 2021.
The company is loss-making at the moment, as it invests in research, development and people. Employee numbers have doubled to 200 in recent years, including scores of engineers and scientists with PhDs. Caldwell is also building a state-ofthe-art factory in Surrey to show customers how they can create Ceres SteelCells, once they have signed licensing agreements with the company.
MIDAS VERDICT: Fuel cells are likely to play a growing role in energy production and Ceres is at the forefront of the industry. An impressive UK technology business exporting its know-how around the world, the company should continue to thrive. At £1.75, the shares are a buy.
CHOCOLATE isn’t just for Easter. It is a treat devoured in most households every week and the manufacture of cocoa and confectionery is worth £1.1billion to the UK economy – making it a tempting choice for investors too.
Laith Khalaf, senior analyst for investment company Hargreaves Lansdown, says: ‘If you want to invest in chocolate manufacturers, you really need to look outside the UK to the likes of Swiss group Nestle and Canadian giant Mondelez, though both have products other than chocolate in their range.
‘For a smaller domestic player, investors might consider Hotel Chocolat.’ The company previously issued ‘chocolate bonds’, paying investors’ returns in the form of sweet treats rather than interest. But since spring 2016 it has also traded shares on the Alternative Investment Market (AIM) – London’s junior stock exchange.
Mondelez is the owner of much loved brand Cadbury.
Research by The Share Centre shows that anyone who invested £100 a month in either of these companies’ shares at the start of this year would have had enough money to buy a basket-load of chocolate eggs by this weekend.
With the former, a £300 investment would have generated a share price growth of £80.68 – enough to purchase two Hotel Chocolat extra thick eggs, an Easter goodie bag and still have £8.68 left over.
The 23 per cent share price rise for Mondelez, which also owns confectionary brands Milka, Oreo and Toblerone, would be enough for investors to buy 177 Cadbury Creme Eggs.
Thomas Rosser, investment research analyst at The Share Centre, says: ‘Shares of Hotel Chocolat trade at £3.53, which when compared to their earnings appear relatively expensive, but this is often expected from fast growing companies.
‘The more established company Mondelez’s shares trade at £38.62 which is fairly priced against its earnings over a five year period.’
Despite strong returns in the first quarter of 2019, as ever with investing this does not indicate how performance will pan out in future. And any knock to consumer spending patterns or wages has the potential to hit stock prices.
Rosser adds: ‘Share prices can fall as well as rise. Moreover, rising commodity costs can influence running costs and put pressure on margins, potentially leading to higher end prices for the consumer.’
Other shares that represent an international love of cocoa-based sweet treats are US-based Hershey Company and Swiss manufacturer Barry Callebaut. The latter is involved in all stages of chocolate production, from sourcing cocoa to finished products. It is listed on the SIX Swiss Exchange.
Lee Wild, head of equity strategy at Interactive Investor says: ‘Investing in food producers, whether they make chocolate or not, is often a sensible move. Making things that people will consume through thick and thin keeps profits rolling in, and there are some reliable UK blue-chip companies that fit the bill.’
Unilever is one example, which Wild says ‘doesn’t just make teabags and household cleaners’.
The company is behind Magnum ice cream, Cornetto and Ben & Jerry’s chocolate ice creams.
‘The latest first-quarter results have gone down well and this food giant is a core portfolio holding,’ says Wild.
Meanwhile Mr Kipling owner Premier Foods licences Cadbury to produce Creme Egg cupcakes and Mini Egg cakes. Dan Coatsworth, stock market analyst at AJ Bell, says: ‘Investors looking to take advantage of a potential uplift in sales around Easter should also note that Premier Foods is burdened with large amounts of debt.’
Fans of British chocolate brand Thorntons cannot buy shares, as it was bought by private company Ferrero International – the maker of Ferrero Rocher and Nutella – four years ago. But AIM-listed Finsbury Food Group has a licensing arrangement with Thorntons to make chocolate treats.
Wild adds: ‘The shares had a rotten start to 2019, but are up over 30 per cent in April after the boss’s wife bought 100,000 shares in the company.’
Meanwhile Europe Nestle shares have risen 17 per cent this year, owing to investors and consumers’ enjoyment of KitKats, Milkybars, Aero and Quality Street.
Another option to consider is the ingredients produced that complement Easter chocolate treats – many of which are produced by 132-year-old AIM-listed Camellia.
Peter Sleep, of Seven Investment Management, says: ‘Camellia grows the citrus fruit that goes into your Chocolate Orange and many of the other fun things that might make your Easter healthier – such as almonds, pistachios, blueberries, pineapples and macadamia nuts.’
The company grows tea in Asia and Africa as well as grapes for wine in South Africa.
Sleep adds: ‘Those who are too health conscious for chocolate will be pleased to know that Camellia also produces your Easter Sunday breakfast avocado.’
If you are more interested in spreading risk by investing in funds rather than individual company stocks, one to consider is Lindsell Train UK Equity Fund.
Both Unilever and Mondelez are in its top ten holdings. It is a favoured fund – appearing on Hargreaves Lansdown Wealth 50 list of best funds in each sector and Interactive Investor’s Super 60 list of rated funds.
At the other end of the scale, purists have the option of investing in the raw ingredients of a chocolate Easter egg – commodities like cocoa and sugar.
The ETFS Cocoa is an exchangetraded fund – which are funds that issue shares and often track an index. This one tracks the performance of the Bloomberg Cocoa Subindex, moving up and down in line with the price of cocoa.
Khalaf, of Hargreaves Lansdown, says: ‘Cocoa ETFs are complex products and they’re for experienced, sophisticated investors with a high-risk appetite only.’
He adds: ‘While the allure of chocolate is plain for all to see, savers should make sure they do their homework when selecting how to gain exposure. No one wants their investments to melt away like a chocolate teapot.’
People will consume through thick and thin with profits rolling in