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It has been a disappointing 12 months for shareholders of power of ceres (LSE: CWR). The share price has plummeted 62% in that period.
However, there are promising signs of business development at the company.
In its annual results announced today (April 15), it said revenue grew last year and Ceres Power expects it to double this year. This is solely due to existing partnerships, so new customers could add even more sales growth to that.
Given the optimistic sales outlook, what's happening to the share price?
Continuous losses
The expected sales increase this year has already been factored into the share price when the deal was announced earlier this year.
Meanwhile, although revenue grew last year compared to the previous year's restated figure, so did losses. The operating loss was £59m on sales of £22m. Those are not attractive economies for any business. The total loss for the year increased to £54m from £48m the previous year.
As expected, the green energy company continues to burn money.
It ended the year with net cash and investments of £140m. This is significantly less than the £182 million he had at the end of the previous year.
That's still a sizeable cash cushion (especially for a company with a market capitalization of £267m). But if the company continues to burn cash, there is a risk that at some point in the future it could dilute existing shareholders to raise more funds.
Sales prospects look good
But what about the expected increase in sales revenue?
I see it positive. It is generally easier to make a company's finances work when sales are large than small. Fixed costs can be spread more widely and higher sales can help cash flows (although this is not always the case in practice).
In addition, the great business with the Taiwanese company Delta It is an important vote of confidence in Ceres technology.
Not only could that mean we'll see more revenue from that customer in the future, but it could also help the company persuade other potential customers to start buying its products.
There is still much to prove
But the agreement also carries risks. This makes Ceres Power heavily dependent on a single customer for its revenue.
That kind of focus can be problematic, as if something goes wrong in that customer relationship, it can have a huge impact on the overall business.
Big contracts sound good, but they can be a mixed blessing. Expanding production and service capabilities to offer them can be costly.
Not only that, but the company has been losing money in part because its business model remains unproven. A deal, even a voluminous one, doesn't necessarily change that.
I think Ceres Energy's current share price could still prove to be a great bargain. It has impressive technology, an existing sales base, and revenue looks set to skyrocket.
Whether it's Actually It turns out to be a bargain, it depends in part on how well you market your products. That remains to be seen and for now I will not invest.