Some may not like this6 Mar 2024 08:06
We are organising a visit to AFC’s factory near Guildford on 11 March- this should be of interest to investors looking at any of the hydrogen transition stocks. Contact us for details.
Investment Case
AFC Energy is one of three UK listed fuel cell systems manufacturers. Each company has a unique approach, with AFC’s being that it can utilise alkaline fuel sources such as ammonia and methanol. This is very different to Ceres Power and most other hydrogen fuel cell companies who require pure hydrogen as their feed stock which is currently not available. There is a real need to build the pipeline and storage infrastructure necessary for the hydrogen economy to become part of the world’s energy equation. AFC’s current focus is on the decarbonisation of the global construction and temporary power markets where it can deliver alkaline fuel cells now and where regulation surrounding carbon emissions and diesel pricing have become more important. While constantly upgrading their technology, the medium and longer term ambitions are focused on more remote EV charging, data centres and maritime. The company’s Power Tower solution is one of the first to be commercially available giving AFC an opportunity to carve out a significant market share before the hydrogen infrastructure is built, while their partnership with ABB gives them a very significant route to global markets. Progress with Acciona is now looking particularly encouraging but deployment is not yet at scale.
The cash position remains adequate, and in the last period ABB topped up their position with a further £2m investment. Cash is estimated by broker Zeus Capital to be £9.6m at the end of the year to October 2024, but to go negative the year after, so more cash will be required at some point in 2025 at the latest- the third broker appointment (see below) suggests sooner, though further strategic partnerships may provide an alternative funding mechanism. Zeus Capital is estimating revenues to remain negligible for the year to October 2023, but to grow significantly by 2024 to £6m (904% increase), and over £11m the year after. The Speedy Hire JV revenues are within this. The company has said that it is looking for ways to ensure the value of the ammonia cracking project is recognised “through industry partnerships and other strategic avenues”- the January announcement is a first sign of what this might look like. A further partnership with ABB would be one possibility- but proof of success in the demonstration is needed first.
Whilst the opportunities are large, value will ultimately depend on the success of AFC’s system in terms of performance and their ability to significantly reduce the cost of the system. Zeus revised their target valuation to 100p (from 180p) in May 2023 and reiterated this in November. In December AFC added a third corporate broker (RBC Capital Markets) to its current two. RBC (Royal Bank of Canada’s investment bank) has a big
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