AFC Energy’s long term opportunity remains vast says Zeus

AFC Energy plc (LON:AFC) has signed an agreement with another leading UK construction/infrastructure player, this time in Kier Group. We believe this further endorses our long term thesis that AFC will play an active role in encouraging the transition away from diesel-fuelled temporary power solutions. We believe its technology could help the sector make clear strides towards a net zero future, which has to commence now if they are to reach this target by 2045. The share price has been weak of late (in line with many growth stocks), but we believe the long term risk/reward from here remains compelling with the investment in hydrogen and future opportunities never stronger. We will review our forecasts and valuation post H1 results in the coming weeks.

¨ Partnership with Kier: AFC has announced a partnership with Kier Group. This will initially involve a lease of its new Power Tower clean hydrogen power generator units for deployment to a construction site in the UK. The lease of this deployment is expected to occur in H2 2022, with AFC sourcing and supplying hydrogen to site on commercial terms with Kier operating the system. The application of this system is expected to power on-site cabins, and this lease could provide the basis for a longer term collaboration in delivering additional fuel cell systems in 2023. Kier has a carbon reduction target to reach Net Zero by 2045 as it moves away from on-site power generators, and utilising AFC’s Hybrid Fuel Cell (HFC) technology could be a key driver behind this. Clearly rising and uncertain diesel costs with geopolitical events impacting fossil fuel prices globally has become a factor in this as well.

¨ Growth theme building: We speculated in March following the collaboration with Keltbray that this could be an area of increasing activity for AFC. The need for this sector to decarbonise is significant, and the signing of Kier who wish to be a pioneer in Zero Emission Fuel Cell Systems is significant in our view. As we have also previously flagged, the removal of the UK’s Red Diesel subsidy for certain industries must also be a key consideration. In addition to working with Kier and Keltbray, AFC is also working with Mace and Acciona in this space, and is assembling a valuable client bank of leading construction/infrastructure companies across the UK and overseas. It would not surprise us to see further collaborations of this nature emerge for AFC over the coming months.

¨ Forecasts: We make no change to our forecasts at this juncture, although if this collaboration does go well, this should give us further long term revenue visibility in 2023/24. We will be reviewing our forecasts when the company releases its H1 results.

¨ Investment view: This collaboration further endorses our view that AFC is well placed in the drive to replace diesel generators in multiple markets. We continue to believe the long term opportunity for AFC remains vast, and this latest collaboration should confirm the growing interest in its technology from leading players in the construction/infrastructure industry. We will review our long term valuation which was in excess of 180p per share post results.

Summary financials

Market Cap£179.95m
Shares in issue734.5m
12m Trading Range21.76p – 67.2p
Free float99.50%
Next EventH1results -June/July 2022

Financial forecasts

Yr end Oct (£m)2020A2021A2022E2023E
y.o.y growth (%)n/mn/m649.1160.9
Adj. PBT-4.6-9.3-12.5-13.1
Adj PAT-4.1-8.6-11.8-12.3
EPS (p) ful dil. adj-0.8-1.2-1.6-1.7
Net cash31.355.440.919.4
P/E (x)n/m n/m n/m n/m
EV/EBITDA (x)n/m n/m n/m n/m
Div yield (%)–   –   –   –  

Source: Audited Accounts and Zeus estimates

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