AFC Energy plc (LON:AFC) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.
Q1: Mike, you’ve just initiated coverage on AFC Energy, what key themes should investors note?
A1: So, with AFC Energy, we’ve initiated coverage as you say, we’ve focused our investment case on the EV Charging opportunity in the UK and Distributed Power opportunity in the UK as well.
What we would say is there is multiple applications of the company, both internationally and in other markets, but we wanted to kind of focus the investment case on two areas of the business that we believe we can measure.
Our intrinsic value on that basis is 68p but we believe there’s a lot more to this and that will become apparent over the coming months ahead, we believe.
Q2: How should investors value the company? What should they be looking at?
A2: Clearly, I think you’ve got to look long term, the long term growth potential I don’t think is in question, I don’t think the technology is really in question now as well, they’ve had some big companies wishing to partner with them on this so I think that’s very strong.
What we’ve done is measured the EV Charging opportunity and clearly, I think in the near term, revenues will be small, but building quickly and that’ll be the case in Distributed Power as well.
So, as I said, we’ve done a DCF based on the EV Charging opportunity but also on Distributed Power, that’s just in the UK alone but there is clearly a lot of applications in other overseas markets, which we have excluded from our current valuation thinking.
Q3: Finally, just in terms of news flow, what would you hope to see first from AFC Energy?
A3: We’ve had some news flow in terms of partnership agreements and we’ve had some news flow in terms of potential involvement in eSports etc. We think there’s potentially more catalyst down the route, perhaps with orders for their H-Power system with local councils and other commercial operators.
So, I think any kind of contract awards or marketing updates etc. should be taken quite well and as and when we see some of these announcements come through, we’ll obviously adapt our thinking in terms of a valuation and start to factor that in as well and hopefully can build on top of the 68p intrinsic value we currently see.
So, hopefully, over the coming months, we’ll see updates from multiple sources which we probably haven’t included in our current evaluation thinking.