Previously month, a UK share I comply with has seen its price explode by round 60%. Regardless of that, it’s nonetheless round 30% cheaper than a yr in the past. May it maintain booming – and ought I to purchase in now?

Inexperienced power share has soared

The corporate in query is Ceres Energy (LSE: CWR). At first look, the enterprise efficiency of the gas cell firm appears combined, at finest. Final yr, income was £22m – however the enterprise reported a lack of £54m. It has been constantly lossmaking for years.

So why have the shares been on a tear of late?

Potential income growth

Ceres has signed a brand new gas cell and electrolysis license with Taiwanese agency Delta Electronics that features staged revenues of £43 million. Round half of that’s anticipated to be recognised as income this yr.

That income is predicted to return by means of expertise switch and licensing. So in idea a minimum of, it could possibly be roughly pure revenue from Ceres’ perspective, rewarding its years of ploughing cash into research and growth.

However the deal was introduced in January, effectively earlier than the UK share jumped in current weeks. In reality, the previous few weeks I’ve not seen any vital information that I feel explains the sudden price motion.

May the share be undervalued?

One clarification is that the Metropolis has been revisiting its valuation of Ceres.

The Delta deal appears set to herald quite a lot of income by itself. It additionally underscores the attractiveness of the corporate’s expertise. If Ceres can promote to extra shoppers worldwide, revenues might develop quickly.

That appears to be the plan, because the agency has been appointing industrial representatives in a number of markets worldwide.

Even after its share price surged in current weeks, Ceres’ market capitalisation stands at £415m. It ended final yr with £140m in money and investments, so the present price implies an enterprise worth of below £300m.

If the Delta deal works effectively there could possibly be extra revenues to return from the deal in future – and that could be the tip of the iceberg. The form of hydrogen power and gas cell expertise through which Ceres specialises is in sizzling demand globally.

Whereas research prices stay excessive, licensing the expertise might allow the enterprise to develop revenues rapidly with out including a lot value.

That might remodel the economics of the enterprise – and probably advantage a far increased valuation for this UK share.

I’m not tempted to purchase but

Will it occur? Perhaps. However possibly not. Ceres’ administration has a observe document of disappointing buyers. Its long-mooted China three way partnership might by no means materialised. The agency has burnt by means of massive quantities of money and continues to bleed pink ink.

The tide might have turned. If the Delta deal paves the way in which for increased revenues and a transfer into the black, I feel the present share price appears low cost. However there’s a lot to show – and we have no idea whether or not that may occur in the long run.

So for now a minimum of, I cannot be shopping for this UK share.