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  • Writer's pictureMark Watson-Mitchell

AFC Energy – a long time to profitability, but worth the wait?

The price of green hydrogen has been forecasted to halve in the next 10 years, and now nations are investing in the infrastructure for their hydrogen future.


There is a lot going for it!


Hydrogen is the simplest, cleanest and most abundant element in the universe.


Alkaline fuel cells generate electricity through an electro-chemical process that combines hydrogen and oxygen to produce pure water as a by-product.


What do these companies have in common?


An interesting question may well be – what do these companies have in common?


ABB, Keltbray, Taylor Woodrow, Colas Rail, Kier, Vard, Acciona, Mace, Altaaqa, Urban-Air Port, Extreme Networks and Julich.


The answer is that they have all used ‘H-Power Towers’ supplied by the AIM-quoted AFC Energy (LON:AFC).


A hydrogen-fuelled Power Tower is an off-grid solution designed to displace fossil-fuelled generators.


Maritime, rail, construction, ports, data centres, rapid EV charging - several industry sectors are beginning to get switched-on to what they can offer.


Users of temporary power are coming under heavy pressure to reduce emissions, and the AFC Energy product range is aimed to help them decarbonise at a time when diesel pricing pressures are increasing.


The Company


Set up in 2006, the £176m capitalised company is based in Cranleigh, Surrey, engages in the development of alkaline fuel cell technology and allied equipment for the generation of clean energy in the UK.


The company is offering a zero-emissions power generation solution to the delivery of sustainable UK and European construction markets through its H-Power Tower which was launched last year.


Early H-Power Tower deployments have been delivered under commercial lease hire agreements which, at present pricing, delivers a capital pay back within two years.


H-Power Towers were leased for >7,000 hours to date into the UK and European construction market, while new contracts have been signed for >8,000 hours of H-Power Tower lease hire in 2023.


This model further supports early market penetration to end customers. In due course, it expects to grow system sales to traditional plant hire businesses.


CEO Adam Bond stated that:


"It is great to see the strong market interest in AFC Energy's new hydrogen power generators and particularly the uptake in the H-Power Tower launched last year.


We continue to see growth in our pipeline for 2023 and look forward to working with new customers, both here and across Europe, to affirm hydrogen's role in supporting the decarbonisation of hard to abate sectors like construction."


Shareholders


With some 735m shares issued, the larger holders include Hargreaves Lansdown (13.5%), Interactive Investor (11.9%), Halifax Share Dealing (5.7%), Barclays Smart Investor (4.3%), Janus Henderson (4.0%), DWP Bank (3.2%), ING-DIBA (3.2%) and HSBC (3.1%).


Fund Manager View


Henderson Opportunities Trust fund manager James Henderson believes AFC Energy could become the market leader in fuel cell technology.


He has maintained that there ‘will be a role for hydrogen to play in the energy transition in hard to electrify areas such as heavy transportation.’


Analyst Opinion – Target Price of 195p a share


Analysts Nick Walker and John Gilbert at Peel Hunt, the group’s NOMAD and Joint Broker, have a Buy rating out on the shares, with a 195p Target Price.


Ahead of results due later in March, they have estimates for the year to end October 2022 for £4.8m (£0.6m) sales, with an adjusted pre-tax loss of £13.7m (£10.7m).


For the current year they envisage £11.0m revenues and an increased loss of £14.9m.


The 2024-year estimates are £30.2m sales and £14.9m losses.


Over at Joint Broker Zeus Capital Robin Byde and Mike Allen suggest sales last year were £4.05m, with a £17.07m loss.


For 2023 their figures show £13.34m sales and a £19.47m loss.


Conclusion – some time to profitability


It is obviously going to take some time to break into profitability.


Therefore, investors must judge the company upon its concept, its marketplace and its future potential.


Just over two years ago its shares were trading at 83.5p, they have since been down to 17p and are currently at around 23p.


Investor interest will build up with more positive corporate news – looking good for the medium-term.

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