AFC Energy: Feedback post Capital Markets Event

AFC Energy plc (LON:AFC) hosted its maiden Capital Markets Event yesterday, giving an excellent summary of its progress in the last year and its prospects. The company is making good progress in commercialising its EV charging product alongside ABB and should be ready for market in 2022. We believe the long-term prospects for the company remain exciting.

Ammonia advantage: The presentation highlighted the advantages of alkaline fuel cells, particularly their ability to utilise lower-purity – and hence much cheaper – hydrogen sourced from cracking ammonia. This is the world’s second most manufactured chemical and has huge cost and energy density advantages over the pure hydrogen which other fuel cell technologies require. Companies around the world are investing heavily in the production of green ammonia, boosting its credentials as a zero-carbon fuel.

Addressable markets: the company’s products will help replace the >$20bn per annum market for diesel gensets used to generate temporary power for
construction and other industries. They will also have a role in new applications like EV charging (with ABB) and Marine and Rail markets (with Ricardo).

Data Centres: The ABB partnership has been expanded to develop a product to generate power for data centres. This is a massive market – estimated at circa 450 TWh of power per annum or about 2% of the world’s electricity consumption. Backup or primary power for this market must eventually be decarbonised and the ABB/AFC Energy product should be competitive and is zero-emission.

Marine: In 2018, the IMO launched a strategy to cut unit-CO2 emissions from the maritime sector by up to 70% by 2050. The World Bank has subsequently identified ammonia as a promising zero-carbon fuel for shipping. This is another enormous potential market which is being explored by AFC Energy alongside Ricardo.

Outlook: the company sees “real serious revenues” in the next 4-5 years (back end loaded) and a “trajectory of growth in revenues that will accelerate”. The timing and trajectory of this growth will depend on customer trials and product development progress with ABB, Ricardo and others but “the proximity of revenue is only getting closer”.

Valuation: Our previous target – published in February – was derived by a DCF model for AFC Energy and gave a valuation of 191p. The main drivers were a detailed analysis of the sales prospects for the new ABB relationship in the US, Canada, Germany, France, Italy and Spain and the prospects for temporary power in the UK. The recent share issue dilutes this to 184p but brings the prospect of significant extra value as new markets – data centres, maritime, rail and for its AlkaMem® anion exchange membrane – are addressed. It also reduces the financial risk caused by cash burn until the company becomes self-sustaining.

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