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(Bloomberg) — Panmure Liberum Ltd. downgraded Ceres Power Holdings Plc to sell, arguing one of the UK’s best-performing stocks has become overvalued while warning against betting on a decline.
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“The market has got ahead of itself,” analysts Alex O’Hanlon and Oliver Swift wrote in a note to clients as they cut their rating two notches from buy. While their 590-pence price target implies about 25% downside from Wednesday’s closing price, they cautioned that “given share price has been sentiment driven, it is too risky to short.”
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The fuel-cell technology company is up more than 700% over the past year, making it the best performer on the FTSE All-Share Index, helped by enthusiasm for clean-energy technology and growing demand for data-center power solutions.
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The Horsham, West Sussex-based company now has two sell ratings after Peel Hunt cut its recommendation in April, also arguing the valuation had become stretched.
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According to the Panmure analysts, the risks stem from the challenges of scaling production of solid oxide fuel cells, as well as Ceres’ reliance on partners to expand manufacturing capacity. The shares fell as much as 16% on Thursday.
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Data suggests a short squeeze may have contributed to this year’s rally. Shares on loan, a proxy for short interest, stood at 4.1% of free float on Wednesday, according to S&P Global Market Intelligence data. That’s down from a 12-month high of 10.2% in April.
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Seven firms tracked by Bloomberg still have buy-equivalent ratings on the stock. Goldman Sachs and Berenberg have price targets above 900 pence, with both citing Ceres’ potential to benefit from the fast-growing data-center market.
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—With assistance from Lisa Pham.
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