- Ceres Power released a trading update stating that things were much as previously expected
- This removes some uncertainty about actual performance
- Ceres Power’s share price probably depends upon estimates of future performance therefore
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Ceres Power Holdings PLC (LON: CWR) released a trading update yesterday. The shares are down around 1% in response which is pretty much a no reaction outcome. The reason there’s no fire lit under that Ceres share price is simply that there was no particular new news in the trading update.
This is something that we as traders have to understand. It is new news which moves market prices. This is what gives rise to the idea of buy on the rumour, sell on the confirmation. We can even delve deeply into economic theory and the efficient market hypothesis if we like. Using Ceres Power as our example let us do that.
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As we explained about Ceres Power before the essential idea is just fine. The world is clearly moving toward non-fossil fuel energy systems. Batteries might work well enough for cars but they won’t for buses and lorries – the weight of the battery required is just too high. It’s also true that stationary power sources might best be served by non-battery technologies. One of those non-battery techs is solid oxide fuel cells which is what Ceres Power does. Ceres also has certain technical leads in this field and some big hitter technological partners.
So the basic technological story works. What matters is how well the plan is executed, therefore. Ceres Power seems to be doing just fine at that too. In fact this latest trading announcement says just that, Ceres is doing just fine.
So, why no grand boost to the Ceres share price? Because this is what we were being told before. That revenue would be around £31.5 million, up 44% from the year before. Cash resources would turn out to be some £250 million. This is what the forecast was, this is what the outturn was – that’s why no massive move in the share price despite revenue being up 44%.
The Ceres share price was already valuing the company at that 44% rise in revenues that is. Which is what the EMH says, markets are efficient at processing information. So, things we know – Ceres Power’s revenue is going to rise 44% this trading year – are already in the prices. OK, so there’s a small uncertainty reduction as we find out that the real-world results are what was forecast but still.
That is, the announcement of “olds” doesn’t move share prices, it’s the announcement of news that does. This then gives us what will move the Ceres Power share price in the future – news. When we get information that wasn’t already incorporated into the Ceres Power share price then that share price will move as a result of the news. It sounds all rather tautological but that’s the reality of stock markets. It’s new information that moves them.