AFC Energy “well placed in the drive to replace diesel generation in multiple markets” says Zeus Capital

AFC Energy plc (LON:AFC) has signed an agreement with another leading UK construction and engineering Group in Keltbray. This further endorses our long term investment case that AFC will play an active role in encouraging the transition away from diesel fuelled temporary power solutions, and help its partners make clear strides towards a net zero future.

  • Collaboration with another leading construction Group: Keltbray, a leading UK based construction and engineering group, has agreed to lease an initial zero emission Hybrid Fuel Cell (HFC) from AFC, that is expected to be deployed by the end of Q2 2022. In line with other leading construction groups, Keltbray has an objective of achieving Net Zero by 2040 or earlier. We anticipate this first unit will be in London to showcase how the construction industry can decarbonise today. We anticipate further collaboration between the two organisations, with a roadmap for further system deployments from late 2022. Both organisations will also be working with local plant hire businesses to encourage the transition away from diesel fuelled temporary power.
  • More activity to be expected in this sector?  The transition away from diesel fuelled temporary power has been a key part of our investment case for AFC Energy for some time, and this latest agreement further endorses this. As we have flagged in the past, the removal of the UK’s Red Diesel subsidy for certain industries, as well as the increasing price of diesel fuel in light of recent geopolitical tensions, will drive more activity in this area for AFC in our view. The group is also working with Mace and Acciona in this sector, and we anticipate more will follow over the coming months as all major construction players will need to make clear strides towards a net zero future.  
  • Forecasts: We make no change to our forecasts at this juncture, although clearly if the collaboration goes well, this should give us further long term revenue visibility. Ourlong-term modelis under review to reflect the company’s pivot towards its “S” Series fuel cells.  These will be much lower cost than the “L” Series which will enable a change in the company’s sales model. The previous approach envisaged an LTSA (long-term service agreement) under which the fuel cell stacks would have been leased to customers. The lower selling price should allow the company to move to outright OEM sales.
  • Valuation: AFC Energy is well placed in the drive to replace diesel generation in multiple markets. We expect its products to demonstrate strong operational performance and class-leading total cost of ownership. We continue to believe that AFC is very well placed to benefit from diesel displacement over the next decade and remain comfortable with our long term valuation in excess of 180p per shares.
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