RE: Sector isn't going to disappear overnight18 Feb 2021 11:21
worth rereading:
poster (27 Jan '21 ):
Questor: buy into this British clean energy firm â it is the Arm Holdings of its generation
Questor share tip: Ceres Powerâs technology looks world-beating. But perhaps its true value is in its unusual business model
Frustration, even anger, greeted the takeover in 2016 of Arm Holdings by Japanâs SoftBank. But those who were dismayed to see a rare British tech success story succumb to a foreign bidder may be cheered to know that there is a new Arm Holdings waiting in the wings â one that moreover looks more resistant to a premature takeover.
This is at least the view of one fund manager who intends to hold on to the stock for many years in spite of a valuation that can look stretched.
His optimism is based in part on a two-fold similarity between the stock in question, Ceres Power, and Arm Holdings itself.
First is the technology. Armâs silicon chips were so good that companies such as Apple were happy to buy them. But then there is the business model â where arguably Arm was cleverer still. It didnât make chips, it just designed them. So it was spared the time, effort and expenditure involved in building factories and could instead devote those resources to research and to designing the best possible chips.
It made money by licensing those designs to its customers: it received a royalty every time a chip was produced to one of its designs. As they appeared in iPhones and other mass-market devices, a great many were sold. Once it had done the hard work of coming up with the design, each actual âsaleâ cost it nothing at all.
Ceres is hard at work developing a similar model. It has world-leading technology, in its case in fuel cells, one of environmentalistsâ greatest hopes for clean power because they can convert the chemical energy in fuels such as natural gas and hydrogen into electricity without combustion by the use of a chemical process instead â which is far more efficient.
âEfficiency is about 85pc if you can harness the heat produced as a by-product or about 60pc if not,â said Matt Evans, who holds the stock in his Ninety One UK Sustainable Equity fund. Internal combustion engines, by contrast, convert as little as a fifth of the energy in the fuel into useful energy.
But Ceres, like Arm, doesnât just have good technology. It has in effect copied Armâs business model too. For Ceres will not mass-produce its fuel cells. It instead pours all its energies into perfecting the design and then licensing it to companies that are skilled in high-volume production.
Part 2 follows
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