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AFC is recapitalised and ready to go, with c. £27.5m of funds raised to finalise the development of its market-leading power generators and crackers, and to speed up commercial deployment. We believe the European hydrogen sector is now more clearheaded, pursuing practical and economic solutions for customers. The Group is leading this change, focused on cost competitiveness for hydrogen fuelling, and workable solutions to mitigate the lack of infrastructure. At this stage we do not publish forecasts, but based on plans presented by AFC, we can see a significant increase in revenue in the next three years, with a positive EBITDA; we provide scenario and valuation analysis. With good execution there is plenty of potential upside with AFC, in our view.
AFC Energy plc
AFC Energy has announced that it has conditionally raised gross proceeds of £23m at 10p (via an oversubscribed Placing and Subscription). The Placing was increased to £23m (from £20m) to accommodate some of the excess demand. AFC will separately seek up to £5m of additional funds from retail investors through the RetailBook platform. The c.£14.5m of conditional Placing shares (by value) and any RetailBook share are subject to approval at the General Meeting, expected on 7 August 2025.
AFC is seeking c.£25m1 to accelerate the commercialisation of its leading hydrogen power and fuelling technologies. The hydrogen economy is hampered by high fuel costs for power users and a lack of infrastructure to support adoption. AFC’s solutions - cost-competitive and subsidy-free generators, and ammonia crackers - help to address these problems. The first product, the 30kW H-Power generator is in ramp up, with production of 300+ units planned through to the end of 2028. The highly innovative Hy-5 containerised ammonia cracker, supporting AFC’s fuel-as-a-service offering, will accelerate production in 2027. Large-scale cracker units will be developed with an S&P500 partner, with deployments from late 2027. At this stage we do not provide forecasts, but based on plans presented by AFC we can see a significant increase in revenue in the next three years, with a positive EBITDA; we provide scenario analysis.
AFC Energy has announced a JV with leading provider of hydrogen powered generator technologies, Industrial Chemicals Group Limited (ICL), one of the UK's largest independent chemical manufacturing and distribution companies. The aim is to provide a low cost and reliable hydrogen supply from ammonia, to a range of secured offtakers. This JV will be formed with existing AFC assets, with minimal further investment at this stage. The agreement will sit alongside the recently announced joint development agreement with a major S&P500 company to develop ammonia cracker technology for large scale and global applications.
AFC Energy has announced good progress on planned cost optimisation initiatives for its 30kW hydrogen fuel cell generator. A reduction of c.85% from current build costs has been achieved from adoption of low-cost stack technology, and due to a detailed “value engineering” exercise. An agreement has been signed for future supply of fuel cell systems to support anticipated demand. Further, plans are well progressed for volume manufacturing, with the intention to enter a strategic partnership with Volex Plc, a leading global integrated manufacturing specialist, to support AFC’s volume growth plans. This announcement follows the signing last week of a Joint Development Agreement with a global industrial S&P500 company to develop a range of highly efficient ammonia crackers for hydrogen production. For both businesses – the fuel cell generators and ammonia cracker units - AFC is now making strong and de-risked commercial progress.
AFC Energy has announced the signing of a Joint Development Agreement with a “leading” global industrial S&P500 company (unnamed). The agreement is to develop a range of small to large scale highly efficient ammonia crackers for hydrogen production. The Group guides that successful completion of JDA milestones is expected to generate “material” revenue for AFC Energy from 2027 onwards. Our forecasts are currently suspended but will be re-introduced with further updates on this highly positive development.
The launch of Hy-5 brings further product diversification, anticipated to deliver a compelling cost of hydrogen. Given the shift in strategy, we suspend our forecasts ahead of further company guidance, placing our recommendation and TP Under Review.
New management has injected energy and focus into AFC. Full year results were in line with our estimates, reporting higher revenue and reduced losses at LBT. The revised strategy is about focus; directing more resources into accelerating production of the newly announced Hy5 containerised, portable, ammonia cracking module, and driving down the costs and increasing the scalability of the H-Power fuel cell systems. Feedback from JV partner Speedy Hire is that customer interest in deployment of H-Power units is healthy, helped by heightened requirements for construction projects to reduce emissions. That said, during this period of significant commercial development, with a new management team onboard, and to allow positive actions to yield results, we withdraw our 2025-26E estimates. AFC is doing much to reduce costs and cash burn, but the balance sheet may need strengthening. In summary, the commerciality of AFC’s leading end-to-end hydrogen fuel cell solutions is taking shape.
High inflation and interest rates in 2024 undermined investment conditions and market sentiment. Persistent ambiguous subsidy frameworks in Europe and regulatory uncertainties in the US frustrated project completions too. There are reasons to be optimistic for 2025, though. Regulatory pressures are likely to ease, particularly for selected UK names with balance sheets to weather continuing ramp-up. Perhaps M&A is on the cards, given current valuations. Here, we discuss our thoughts for 2025 and where we think investors should be exposed.
AFC CWR CPH2 ITM
AFC delivered strong sales into the Speedy Hire Services (SHS) JV over FY24, but perhaps more importantly, it achieved its first TAMGO order, which was a key milestone in proving commerciality outside of home markets. In this note we refresh forecasts, leaving revenue unchanged, but tweak our cash assumptions given some product was shipped close to the year end. Share price declines of c60% since June fail to reflect the momentum across AFC’s key target markets in the period, which extend far beyond the UK construction market. Our DCF-derived TP is unchanged at 55p, and we reiterate our BUY.
* A corporate client of Hybridan LLP ** Potential means Intention to Float (ITF) has been announced, or it is a rumour ***Arranged by type of listing and date of announcement ****Alphabetically arranged Share prices and market capitalisations taken from the current price on the day of publication Dish of the day Admissions: None Delistings: None Delistings on Friday 1 Nov. I3 Energy Plc (I3E.L) delisted from the AIM market. Boussard & Gavaudan Holding Limited (BGHL.L) delisted from the Main market. STM Group Plc (STM.L) delisted on from the AIM market. What’s baking in the oven? ITF announced:*** Potential** Initial Public Offerings: 17th October 2024: Selkirk Group: a newly incorporated company established with the primary objective of listing on the AIM market and acquiring a company or business headquartered in the UK, which the Directors believe is undervalued. The Company is primarily focused on the small and mid-cap market, specifically within the Consumer, Technology and digital media related sectors. Expected first day of trading is now delayed to early November 2024 with an expected size of primary offer of £7.5m. 31 October 2024: Winking Studios: the AAA Art Outsourcing and Game Development business listed on the Catalist board of the Singapore Exchange Securities Trading Limited, is pleased to announce its intention to seek Admission to trading on the AIM market in November 2024 (the Dual Listing) to support, amongst other efforts, its expansion into Western markets. The Company has Partnerships with three major game publishing platforms: Sony, Microsoft and Nintendo and significant organic growth over the past four years, doubling headcount to 800+, increasing revenue to US$29.3m and growing Adjusted EBITDA to US$5.3m (FY23). Our daily digest of news from UK Small Caps If you would like to unsubscribe, please email enquiries@hybridan.com with “unsubscribe me”. Hybridan Chefs research@hybridan.com Banquet Buffet**** AFC Energy 9.72p £83.0m (AFC.L) The provider of hydrogen power and ammonia cracking solutions announces a trading update for the financial year ended 31 October 2024. Revenue of approximately £4.0m (unaudited) recognised for FY24, slightly above market expectations, driven primarily by sales of hydrogen fuelled power generators to Speedy Hire Services (SHS) for lease to customers of Speedy Hire. As at 31 October 2024, the Company held unaudited cash and cash equivalents of £15.4m and unaudited trade receivables less trade payables of £2.5m. Clean Power Hydrogen 9.75p £26.3m (CPH2.L) The green hydrogen technology and manufacturing Company that has developed the IP-protected Membrane-Free Electrolyser (MFE) announces that it has entered into a Licence Agreement with Lisheen H2 Energy Park Limited, which trades under the name Hidrigin. In addition to signing the License Agreement, the parties have entered into a Sales Contract for the delivery of a 1MW MFE220 electrolyser unit by CPH2. The Licence Agreement grants Hidrigin the right to manufacture up to 2GW's of MFE220 units in Ireland to connect with its own Solar PV & Wind Farms across the world for its own use. Under the Sales Contract, Hidrigin will purchase a 1MW MFE220 electrolyser from CPH2 with delivery expected in 2025. Croma Security Solutions 78p £10.7m (CSSG.L) The AIM listed innovation and service-focused security solutions provider announces its final results for the twelve months to 30 June 2024. Group revenue was £8.74m, up 8.9% (FY 23: £8.03m), EBITDA on continuing operations was £1.06m (FY23: £0.95m) up 12% and strong balance sheet with cash and cash equivalents of £2.14m (FY23: £2.14m). On 6 July 2024, a further £1.76m was received in relation to the sale of Vigilant and a further £0.45m in September 2024. FY25 trading has started well with good demand from commercial customers and consumers looking to increase their security, underlined by recent events over the summer DP Poland 11.25p £103.3m (DPP.L) The operator of Domino's pizza stores and restaurants across Poland and Croatia announces a trading update for the nine months to 30 September 2024. LFL System Sales in Poland grew by 21.8% YTD (end September 2024), with the Delivery channel continuing to increase its share of business, now accounting for two-thirds of System Sales. Order counts grew strongly and most importantly was the main driver of revenue growth, with Poland LFL System Orders increasing by 17.3% YTD, and Average Weekly Order Count for Poland continuing to expand, to over 800 per store YTD. Since April 2024 DP Poland has experienced upward pressure on food costs, particularly dairy products. Despite this, the Company has continued to grow orders and market share without sacrificing store level profitability. The Board remains confident in the Group's performance and expects its results to be in line with market expectations for 2024. DSW Capital 65p £14.3m (DSW.L) The professional services licence network and owner of the Dow Schofield Watts brand announces that it has completed the significantly earnings-enhancing and transformational acquisition of DR Solicitors Limited (DR Solicitors) for a total consideration of £6.1m. Under the terms of the Acquisition agreement, DSW Capital has paid a total consideration of £6.1m, satisfied by £4.3m in cash and £1.8m of new ordinary shares of £0.0025 each in DSW Capital (Consideration Shares). The parent company of DR Solicitors is DR Services Holdings Limited (DRSH). DRSH has entered into a lock-in agreement with DSW, pursuant to which it will not dispose of any of the Consideration Shares for a period of two years to 1 November 2026. The Acquisition brings a highly scalable, cash generative, and profitable Legal Platform to the Group. The Acquisition is expected to be immediately and significantly earnings-enhancing and it is the Board's intention to maintain the Group's progressive dividend policy. EnSilica 51.5p £49.7m (ENSI.L) The chip maker of mixed signal ASICs (Application Specific Integrated Circuits) announces that it has secured a new debt facility to refinance its existing external loan facilities, providing total funding of up to £9m and extending out to November 2029. The Facility has been agreed with Lloyds Bank providing the Company with additional flexibility to underpin ongoing working capital commitments, and ensuring that EnSilica can fully capitalise on its existing new business pipeline. The Facility consists of a three-year £3m repayment term loan facility and a five-year £3m revolving credit facility with an accordion option for an additional £3m subject to credit approval by the lender. The Facility also improves the borrowing costs of the Company. The Facility agreements contain normal market terms and financial covenants. Feedback 25p £3.3m (FDBK.L) The Company announced that it is raising approximately £5.2m (before expenses) in conjunction with a further £1m in a Retail Offer at 20p which represents a discount of around 55%. The fundraise is conditional, inter alia, upon the completion of the Share Capital Reorganisation and the offer closes 4.30 Tuesday 5th November and Admission is on Friday 29th November. The funding will be mainly used to drive growth through the collaboration agreement announced on 19 September 2024 with a large UK primary care partner. The collaboration provides a potential route to rapidly roll out Bleepa, leveraging the existing footprint of the partner to support national engagement. The combined proposition, as a clinical service rather than a technology sale, would provide access to potential large recurrent pots of core funding. The Finals to May 2024, also announced today reports a 15% increase in turnover to £1.15m and a 5% reduction on EBITDA to £2.73m, with cash of £3.88m. The CEO commented that with improving NHS prospects, a viable funding mechanism and a channel partner who can help deliver national scale at pace, plus growing visibility of international opportunity, he believes there has never been a better time to invest in the Company. Physiomics * 0.65p £1.3m (PYC.L) The mathematical modelling, data science and biostatistics Company supporting the development of new therapeutics and personalised medicine solutions announces the hiring this week of a new senior member of its team, Dr Mark Davies, as Head of Quantitative Pharmacology and Data Science. Dr Mark Davies brings over 20 years' experience in drug development, both from the perspective of working within major pharmaceutical companies (such as AstraZeneca) as well as from within service businesses supporting biopharma companies worldwide. During this time, his roles have spanned a variety of different disease areas and phases of drug discovery and development. His main areas of experience are within computational biology and data informatics, more recently, he has worked in business development roles for state-funded (Medicines Discovery Catapult) and multiple Contract Research Organisations (service providers) across Europe. Synectics 270p £48.0m (SNX.L) The advanced security and surveillance systems announces that it has been awarded further contracts as part of a framework agreement with National Grid. The contracts, which are valued in aggregate at approximately £2.2m, are for the delivery of security improvement works for 12 sites across the UK. Synectics was awarded its first contract under the National Grid framework agreement in October 2022 and will now be deploying its services across a total of 32 sites. The contracts will be delivered by Ocular Integration, the Company's division formerly known as Security, which will be responsible for implementation as well as providing ongoing customer support. Vianet Group 114p £33.6m (VNET.L) The international provider of actionable data and business insights through an integrated ecosystem of connected hardware devices, software platforms and smart insights portals, today announces a trading update, and notifies the market that it will release its results for the six months ended 30 September 2024 on 3 December 2024. The trading update stated that revenue growth increased in H1 2025 to £7.69m, up from £7.19m in H1 2024, the adjusted Operating Profit rose 10.1% to £1.43m (H1 2024: £1.3m) and the Company expects to report a reduced net debt of £1.0m (H1 2024: £2.09m) and cash balances increased to £2.25m (H1 2024: £1.32m).
AFC CSSG DPP DSW ENSI FDBK 8091 PYC SNX VNET
The company also launched Hyamtec, a 100%-focused subsidiary, for its ammonia cracking activity. Newly appointed CEO John Wilson is due to start on 6 January 2025. We are reducing FY24/26E revenue forecasts and cutting our TP from 125p to 70p. We maintain our Buy recommendation.
AFC has issued a positive pre close update for the 12 months to 31 October. The year was transformational with good progress on the manufacturing scale up and product roll-out. Revenue is slightly ahead of our forecast and the cash position is about in line. Momentum at the JV with Speedy Hire, Speedy Hydrogen Solutions, is building. Formation of Hyamtec as a standalone business to exploit AFC’s market leading ammonia cracking technology is exciting. The new UK Government has made various announcements supporting the hydrogen economy, which should help sentiment in the sector. The new CEO, John Wilson, will join in early January. Our FY25-FY26E estimates are unchanged.
Hyamtec’s technology provides low-cost, scalable, on-demand hydrogen from liquid ammonia, for industrial and mobile applications. As a wholly owned subsidiary, Hyamtec has increased flexibility in seeking financing for its growth. We maintain our Buy recommendation and 125p TP.
AFC Energy has announced the launch of Hyamtec Limited (“Hyamtec”), a wholly owned subsidiary established to commercialise the Group’s next-generation distributed ammonia cracking business. The aim of this technology is to support low-cost, scalable, and on-demand hydrogen production for industrial and mobile applications. As a subsidiary of AFC, Hyamtec will have increased flexibility in seeking funding for its growth and offer investors more focused exposure to this cracker technology. We believe developing this capability is crucial to the widescale adoption of hydrogen for multiple industrial applications. In our recent post-fundraising note we discussed our early-stage analysis of the valuation of this technology, which could exceed £100m, and, with further development, possibly much more. We will monitor this exciting development closely. Our DCF-based valuation for the Group is 80p, very good potential upside to the current share price.
John has led technology-driven businesses through significant growth and transformation phases and is experienced in business development and commercial scale-up execution. He has a track record of enhancing shareholder value through commercialisation of complex technologies. We reiterate Buy, TP 125p
As we forecast, 2024 has been a better year for the UK Clean Hydrogen & Fuel Cell names and we anticipate improving share price performance into Q4/CY24 and CY25 partly driven by improved sentiment as European projects begin to reach FID. In this note we look ahead to Q4 and compare expectations for the key metrics (revenue, gross margin and net cash) for the UK names with Ceres Power remaining our top pick. AFC Energy has the most short-term upside potential given several significant catalysts.
AFC CWR ITM
AFC’s recent interim results saw first revenues from its strategy to sell fuel cell generators to displace diesel to equipment hire companies like Speedy Hire through the recently established Speedy Hire Solutions (SHS) JV. AFC now plans to deploy the recent £15.8m funding to accelerate production to deliver greater sales in H2/24E and beyond. Momentum continues to grow across AFC’s key target markets, which extend far beyond the UK and construction, and despite short-term cuts to revenue forecasts, our DCF-derived TP increases to 55p (from 50p). We reiterate our BUY recommendation.
Acciona is to lease the system, with an option to purchase it at the conclusion of the lease. Acciona has been a consistently strong partner of AFC Energy. Displacing its fleet of diesel generators with hydrogen versions is a significant stated pillar of its decarbonisation strategy.
With the newly elected government having a strong growth, green energy and hydrogen agenda, and with Hydrogen UK having published its own Hydrogen Manifesto (outlining the wants and needs of the industry), we consider the outlook and catalysts for the growth of the hydrogen industry over the next five years and why there are growing reasons for optimism. To listen our podcast, please click the image below.
AFC has been busy. In June, the Group raised £15.8m to scale-up manufacturing to fulfil current and anticipated orders for its market leading 30kW hydrogen-fuelled power unit. The medium-term aim is to displace diesel generators used for temporary power: probably a $20bn market globally. The immediate route to market is via the Speedy Hydrogen Solutions JV (SHS) with leading equipment hire company Speedy Hire (SDY LN). AFC is also accelerating the implementation of a flexible manufacturing plan, blending in-house and outsourced production; key partners have now signed-up. Equally exciting is the development of the compact ammonia cracker unit, a solution for efficient and economic dispersed distribution and use of hydrogen. Our forecasts are adjusted for the fundraise and the near-term c. £26m order book. Our DCF-based valuation is 80p, good potential upside to the current share price.
23rd July 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced, or it is a rumour Dish of the day Admissions: None Delistings: None What’s baking in the oven? ** Potential**** Initial Public Offerings: ITF announced: 8th July 2024: Rome Resources: The Canada-based early-stage resource exploration Company has announced its intention to IPO on AIM in order to continue to make financial progress on its “Bisie North Tin Project”. The Company’s first day of trading on AIM is expected to be 26th July 2024. The Primary Offer expected size is approximately £4.0m. Reverse Takeovers: Georgina Energy Plc, a UK-domiciled company with helium, hydrogen, and natural gas development and production assets in Australia, has announced its intended reverse takeover of Mining Minerals & Metals Plc (MMM.L) and a capital raise to secure gross proceeds of £5m. The company’s first day of trading on the Standard Segment of the Main Market is expected to be in late July 2024. Our daily digest of news from UK Small Caps If you would like to unsubscribe, please email enquiries@hybridan.com with “unsubscribe me”. Hybridan Chefs research@hybridan.com Banquet Buffet*** AFC Energy 15.5p £143.1m (AFC.L) The provider of hydrogen power generation solutions and technologies announces its interim results for the half year ended 30 April 2024 (H1 FY24). Revenue was £408k (H1 FY23: £201k) and the loss after tax was £8.3m (H1 FY23: £6.3m in loss). Cash and cash equivalents totalled £12.3m (H1 FY23: £32.7m) and post period, the Company raised £15.8m (gross) via a placing and subscription. The Company continued revenue growth in H2 FY24 through further sales to Speedy Hire and Speedy Hydrogen Solutions (SHS), its joint venture partner. Altitude Group 47.0p £31.2m (ALT.L) The end-to-end solutions provider for branded merchandise beats market expectations on adjusted operating profit and achieves record breaking results for the year ended 31 March 2024 (FY24). Revenues are expected to be up 33%, at constant currency, to £24.0m (FY23: £18.8m) with a record adjusted operating profit of £2.4m (FY23: £2.0m) up by 31%. The Group has doubled revenues since FY22 and increased adjusted operating profit by over 225% over the same two-year period. In the first full quarter of FY25, the Group continues to perform well across both its Services division and its rapidly scaling Merchanting division. Audioboom Group 232.5p £40.9m (BOOM.L) The global podcast Company announces its unaudited results for the six months ended 30 June 2024. H1 revenue was US$34.1m, up 7% on H1 2023 (US$31.8m). Adjusted EBITDA was US$0.3m (H1 2023: US$0.3m) - Q2 represented the third successive quarter of positive adjusted EBITDA. Group cash at 30 June 2024 was US$3.5m (31 March 2024: US$3.1m), with a further US$1.9m available via an undrawn overdraft. The Company has in excess of US$65m of revenue booked for 2024 - more than the total revenue for 2023. The Board continues to examine opportunities to maximise shareholder value including, amongst other initiatives, transactional opportunities and the option of Audioboom also being publicly listed in the US. Diaceutics 134.5p £113.51m (DXRX.L) The technology and solutions provider to the pharma and biotech industry announces the following changes to its board. Deborah Davis has informed the board of her intention to step down as Non-Executive Chair effective 1 October 2024. Peter Keeling, a co-founder and Executive Director of Diaceutics will succeed Deborah as Non-Executive Chair effective 1 October 2024. Peter will also serve as a Non-Executive Director on the Remuneration and Audit & Risk Committees. Eagle Eye Solutions 490.0p £140.0m (EYE.L) The SaaS technology Company that creates digital connections enabling personalised, real-time marketing, provides a trading update for the year ended 30 June 2024 (FY24). Group revenue increased 11% to £47.7m (FY23: £43.1m). Adjusted EBITDA was ahead of market expectations, increasing by 28% to approximately £11.3m (FY23: £8.8m). Net cash position was £10.4m (30 June 2023: £9.3m). The contract wins secured at the end of FY 2024 and into FY 2025 provide a strong basis for further growth through FY25 into FY26. European Green Transition 13.5p £19.89m (EGT.L) The Company developing green economy assets in Europe announces that the first stage of diligence on the Cyprus Copper Tailings Recycling Project at the past-producing Limni copper mine in Cyprus has delivered encouraging results across 68 samples. Acid soluble copper ranging from 0.41% to 0.92% found in crusts clearly demonstrates the presence of copper in water at surface. Results also indicate potential upside for gold, with samples of up to 1.48 g/t Au recorded from waste near the edge of the pit. EGT will now progress to the next stage of diligence as part of its option agreement (as announced on 29 April 2024) to develop a copper tailings recycling project through low-cost water treatment and tailings development, with subsequent potential for solar development. H&T Group 381p £170.5m (HAT.L) The UK's largest pawnbroker and a leading retailer of high quality new and preowned jewellery and pre-owned watches issues a trading update for the six-month period ended 30 June 2024. Trading in the period since the Company’s previous update on 16 May 2024, has been in line with expectations. The capital value of the pledge book (excluding accrued interest and provisions) at 30 June was £105m (31 December 2023: £101m). All key pledge book metrics remain in line with expectations. Retail sales, through the demand for high quality new and pre-owned jewellery and watches, and foreign currency revenues, continue to perform in line with forecasts, while scrap margins are improving as expected. James Cropper 290p £28.7m (CRPR.L) The Advanced Materials and Paper & Packaging Company announces its audited results for the year ended 30 March 2024. FY24 revenue was down 21% at £103.0m (FY23: £129.7m) due to weaker end-market demand and energy surcharges. Adjusted operating profit was £2.0m (FY23: £4.8m) with the impact of revenue shortfall partly mitigated by falling raw material and energy prices and cost saving. Net debt was £15.5m, down £1.1m (FY23: £16.6m) reflecting an increased focus on cash management. FY25 year-to-date trading has been in line with the Board's expectations. Ocean Harvest Technology 7.75p £14.5m (OHT.L) The researcher, developer and supplier of proprietary blended seaweed products as functional additives for the global animal feed industry provides a trading update on the first half of the year (1H FY24). Reported revenue is expected to be approximately EURO 950,000, 46% lower than reported revenue for 1H FY23. This fall is more than accounted for by the fact that OHT's two largest customers of 2023 have yet to order product this financial year. Due to the concentrated nature of the Company's existing customer base and some uncertainty over ordering cycles, the Company intends to provide further guidance on outlook with its 1H 2024 results in September. SkinBioTherapeutics 10.4p £18.5m (SBTX.L) The life science business focused on skin health announces that it received the final Conversion Notice on 22 July 2024 from Macquarie for £480,000 of Convertible Bonds from the initial £5m convertible bond facility announced on 25 January 2024. The Company has drawn a total of £1.6m under the Facility, and will not be drawing any further funds from the facility, as announced on 28 February 2024.
AFC ALT BOOM DXRX EYE CRPR SBTX HAT
Adam Bond has announced he intends to step down as CEO and leave AFC Energy after c.10 years with the company. He plans to move back to his native Australia to be closer to his family. He leaves the company on good terms. A replacement CEO will be sought, starting immediately.
This agreement follows a contract manufacturing agreement with Illuming Power, based in Vancouver, Canada, in May 2024, for supply of fuel cell plates and stacks. These outsourcing deals are part of AFC Energy’s stated and planned low-capital, outsourced contract-manufacturing strategy.
Over May the UK NECT peer group recorded a 6.5% gain, adding to the strong performance YTD (+13.8%). Unlike April, the Ex-UK NECT peer group managed to outperform the UK as it recorded gains of +11.6%. Despite the strong performance, the peer group remains down 14.2% YTD. In this short note, we provide updated monthly performance and valuation data across the NECT sub-sectors.
AFC CWR LIB DSCV EQIP ITM JMAT NEL NEL SNKSY
We examine the current and future uses of hydrogen, the primary cost factors of producing green hydrogen, and the optimal geographies for net export and import. We evaluate hydrogen production projects globally, the attributes of different electrolyser technologies, and provide details on 60 public and private electrolyser companies.
This is AFC Energy’s first agreement to sell its fuel cells for integration into the products of a third party. We see this as a very positive and revenue-additive new sales model. We are reviewing our forecasts and will update shortly. We maintain our Buy recommendation and 125p TP.
As we expected, easing project risks, particularly for the electrolyser manufacturers, has started to materialise. However, whilst the first European and UK Clean Hydrogen auctions have completed, it will take time to impact the listed names as projects need to progress to final investment decision (FID) stage before orders are placed. More encouragingly, recent EHB auction bids suggest that offtakers are more willing to pay a higher price for clean hydrogen than was perhaps expected – and convincing offtakers remains the ultimate hurdle. Despite a different, and in our view more favourable, approach in the US (reducing costs and incentivising project developers), Europe continues to close the gap from a regulatory perspective. In this note we look at recent regulatory developments, back at a mixed YTD in terms of share price performances and update thoughts on the five stocks under coverage. Across its S Series and S+ Series platforms, AFC can now deliver a full range of generators from 10-500kW and address rapidly increasing demand from the UK construction sector for clean power generation evidenced by key projects like HS2 and the Lower Thames crossing pledging the removal of diesel. As such, we expect further positive developments from the Speedy Hire Solutions (SHS) JV in the near-term. However, arguably the bigger prize is penetrating larger markets such as the Middle East through its distribution agreement with TAMGO, which would provide significant upside to our current forecasts. On top of that is the substantial longer-term opportunity in ammonia cracking, where we were extremely encouraged at the recent CMD by insights provided by customer Industrial Chemicals Group (ICL), one of the UK's largest independent chemical manufacturers & distributors. It’s an exciting time for AFC and we reiterate our BUY recommendation and 50p TP. 2023 was a challenging year for Ceres, particularly as it became clear the 3-way China JV with Bosch and Doosan would not be completed as originally planned. However, in our view, despite this, the investment case has only strengthened, with January’s Delta deal not only validating the Solid Oxide Electrolysis (SOEC) strategy, but also providing further evidence of Ceres’ core technology strength, enabling its partners a quick, reduced-risk route for locally manufacturing systems for clean power and fuel generation. Delivery of another licence deal remains the key short-term catalyst. Ceres remains the only UK pureplay clean technology company achieving de-risked scale through world-class partners in advanced geographies for the adoption of clean technologies. We reiterate our BUY recommendation and 610p. After delivering its first proper set of results in January that showed consistent delivery of product, ITM continues to make progress. Last week it launched NEPTUNE V, a new product developed following significant customer demand. Furthermore, the recent partnership with Hygen provides validation of both ITM’s technology and manufacturing capability. With Hygen also part of HydraB, the group holding company of several ‘Road to Zero’ companies (e.g. Ryze Hydrogen and Wrightbus), immediate offtakers exist, derisking potential future project wins. We expect Hygen has taken part in the HAR2 applications, where successful applications would be announced early next year and prompt contracted orders for ITM. The turnaround story continues, and we reiterate our BUY and 90p TP. JMAT is a credible, low risk play in the Clean Hydrogen space, given established sales, a closed loop offering and a strategic approach to scaling through strategic partnerships. The recent $1.7bn loan from the DoE, which will be used to build 6 green hydrogen projects, removes the financial uncertainty surrounding its most important US partner, Plug Power. However, with only 1% of Group sales sitting in Hydrogen Technologies (HT) today, there are other moving parts to consider as this business grows. Nevertheless, with headwinds that impacted over 2023 now easing and the disposals of its non-core businesses now complete, it should be easier for management to demonstrate that the energy transition growth businesses, including HT, have the potential to deliver better profitability and growth over the long-term. We reiterate our BUY recommendation and 2,250p TP. Nel remains the most mature of the pureplay electrolyser manufacturers and with a strong US footprint and expanding capacity it has been an early beneficiary of the US Hydrogen Hub Program. It should also benefit from an easing of project related complications in Europe, which should drive improving order intake and contract wins in home markets. The potential spin-off and separate listing of its Fueling division would also be a positive development and allow the company to focus on securing higher-margin, large project wins in the electrolyser division. Despite cuts to revenue forecasts over FY24-25E, we reiterate our BUY recommendation. Our DCF-derived TP falls to NKr9.8 TP (NKr12.7).
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Across its S Series and S+ Series platforms, AFC can now deliver a full range of generators from 10-500kW and address rapidly increasing demand from the UK construction sector for clean power generation evidenced by key projects like HS2 and the Lower Thames crossing pledging the removal of diesel. As such, we expect further positive developments from the Speedy Hire Solutions (SHS) JV in the near-term. However, arguably the bigger prize is penetrating larger markets such as the Middle East through its distribution agreement with TAMGO, which would provide significant upside to our current forecasts. On top of that is the substantial longer-term opportunity in ammonia cracking, where we were extremely encouraged at the recent CMD by insights provided by customer Industrial Chemicals Group (ICL), one of the UK's largest independent chemical manufacturers & distributors. It’s an exciting time for AFC – we reiterate our BUY recommendation and 50p TP. CMD: Last week, AFC held a well-attended and very useful covering the SHS JV and opportunity for its fuel cell based generator products in the construction market. It also provided an overview of AFC’s proprietary ammonia cracker technology, the market and AFC’s unique positioning. Perhaps most importantly, we also learnt how AFC is rapidly commercialising and scaling operations. Presentations were led by the C-Suite, including the CTOs of both the Fuel Cell and Fuel Conversion divisions. We were also pleased to hear from several of AFC's key partners, including Speedy Hire CEO Dan Evans, and customers, of which we found ICL to be the most interesting in terms of shaping the longer-term opportunity for AFC’s ammonia cracker technology. 2024 now focused on delivery: AFC has now put in in place the foundations to facilitate routes to market with Tier 1 partners, H-Power Generator deployments to the field from this month, technology validation through satisfactory factory acceptance tests, links to international component and manufacturing partners and growth in production capacity both internally and externally to support growth. AFC’s addressable markets offer quick access through regulation with sizeable growth potential and there remains notable upside from ammonia cracking (Fuel Conversion division). Reiterate BUY: We continue to value AFC using a Group level DCF model, which continues to generate a 50p TP. However, our forecasts still exclude any contribution from the distribution agreement with TAMGO or within the Fuel Conversion division, so there is plenty of opportunity for upgrades.
The company expects this agreement, aligned with its strategy to outsource key segments of its manufacturing to third parties, to allow it to benefit from materially lower components and system costs as volumes grow. We maintain our Buy recommendation and 125p TP.
The UK NECT sector’s positive run of 2024 ended in April with average declines of 3.6% in the month, led by the Waste-to-Energy sub-sector with an average performance of -15.1%. However, encouragingly, the UK sector’s performance remained ahead of its Ex-UK counterpart, which was hampered by the Electrification sub-sector once more (-14.1%), particularly EV OEMs. In this short note, we provide updated monthly performance and valuation data across the NECT sub-sectors.
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The UK NECT sector continued its positive run in March ending the month with an average return of +4.6% boosted by the double digit returns of the Clean Hydrogen & Fuel Cell and Circular Economy sub-sectors (12.2% and 10.3%, respectively). More importantly for sentiment, this means the UK NECT sector also ended Q1/24 +6.1%, the first positive quarterly return since 2021. However, the Ex-UK NECT sector continued to struggle ending the month -1.6% on average, once again hindered by the performance of several EV automotive OEMs as the themes highlighted in our EV yearly review all intensified. In this short note, we provide updated monthly performance and valuation data across the NECT sub-sectors.
With a growing contracted order book, multiple routes to market and successful product deployments, AFC successfully validated its technology, H-Power Generator business model, and most importantly, customer demand over FY23A. Alongside order delivery with each of its key customers, further capital cost reductions, new manufacturing scale up partners and international dealerships are targeted over 2024, which will provide confidence in delivering contracted customer deployments and near-term revenue forecasts. AFC continues to deliver, on time, with impressive partners and in markets where regulation is driving the accelerated need for decarbonised power alternatives –we reiterate our BUY and 50p TP. FY23A – foundations laid: Whilst AFC’s FY23A results announced last week reported modest revenue of £0.2m (FY22A: £0.6m), this was due to a focus on market penetration, which led to material growth in the current customer orderbook. In any case, FY23A results are somewhat irrelevant as the company now pivots to delivering its generators with the foundations now laid in terms of securing supply chains with investment into manufacturing capacity and people completed. Importantly, despite significant investment in the year, the cash outflow YoY has fallen, and monthly cash burn has decreased, resulting in a better than expected cash position at YE of £27.4m. FY24E – delivery: With the foundations now laid, management is focused on delivery in 2024, initially to meet growth in UK and European construction demand. There is no shortage of near-term catalysts, with AFC targeting sales to Speedy Hydrogen Solutions (SHS), through first customer hires, and to Acciona through the delivery of its first 50kVA H-Power Generator. It also aims to receive and deliver the first orders from TAMGO to meet the accelerated growth in Saudi offgrid power demand. Confirmation of manufacturing partners for scaled H-Power production will provide confidence in near-term revenue forecasts. Product development: Post period end, AFC also completed design and engineering of its 30kW H-Power Generator, with successful Factory Acceptance Testing (FAT) now complete. Furthermore, S Series fuel cell operation cost reductions were achieved including reduced £/kW capital costs by 50% since 2023 and a 16% improvement in fuel efficiency, which will drive material savings for customers’ total cost of ownership. AFC is now well placed to deliver its new H-Power Generators to customers over the 2024 calendar year and we reiterate our BUY recommendation.
AFC continues its commercialisation roadmap providing customers and partners with the assurance of market leading fuel cell generator products. This year the focus will be on manufacturing and commercial scale-up, and delivery of units to fulfil its newly stated £26.6m order book. We expect delivery of the company’s first 30kW H-Power Generators to Speedy Hire, its 50kVA H-Power Generator to ACCIONA, and first orders from TAMGO across the Saudi and MENA regions. We also forecast strong growth in AFC’s key financial metrics from FY26, with a top-line CAGR of 81% in 2025-2030 and EBIT breakeven achieved in 2028. At our 68p/share TP, AFC trades on a FY30E EV/Sales of 0.7x and FY30E EV/EBITDA of 2.1x. BUY.
Key highlights included the successful testing of several Power Tower units with major contractors including Acciona, Kier# and Keltbray, leading to the launch of the 50:50 JV with Speedy Hire# and initial commercial orders for 30kW units. We maintain our Buy rating and 125p TP.
AFC has made strong progress with products and its manufacturing strategy. Despite heavy investment, the cash position, at £27.4m, was slightly better than our estimate for £26.9m, demonstrating good discipline. The monthly cash burn rate (at c. £1.3m) is tracking in-line with our expectations. Generally, we maintain our estimates for significantly increased sales in FY24e and FY25e, with the cash position unchanged. Recent news on commercial progress has been positive. The 30kW H-Power Generator has passed its Factory Acceptance Test satisfying all requirements under the agreement with Speedy Hire (SDY LN). The generator is ready for sales to Speedy Hydrogen Solutions (SHS), the dedicated hydrogen powered generator joint venture. The H-Power Generator has now also received independent Attestation of Conformity for the CE Mark allowing volume sales to commence. A JV with TAMGO is signed to open the MENA region to sales, and the build phase for the larger liquid cooled 200kW S+ unit has been completed. Good progress has also been reported with the Ammonia Cracker, which has achieved significant operational and technical milestones; this could be a significant source of value for shareholders in future. FY24e will focus on manufacturing and commercial scale-up, and delivery of units to fulfil AFC’s newly stated £27m order book.
Both capex and opex cost reductions lower the total cost of ownership (TCO) of fuel cell generators, which is seen as a key prerequisite to industry-wide adoption. We expect to see further capex and opex improvements, both from ongoing value engineering optimisation and when AFC Energy moves into high-volume production. We reiterate our Buy rating and 125p TP.
Positive news flow in recent weeks has served to strengthen AFC’s mass commercialisation outlook of its emission-free fuel-cell power-systems technology. The company continues to target the construction sector as a priority end market for deploying its hydrogen-powered fuel cells. Specifically, the company’s air-cooled H-Power Tower is the core product earmarked for construction and already seeing strong initial traction with vendors. We estimate a TAM of 2GW-equivalent for AFC in the construction end market which we estimate to be worth up to c.£2.75bn by 2030. At our 85p/share TP, AFC trades on an undemanding FY30E EV/Sales of 0.7x and FY30E EV/EBITDA of 2.1x. BUY.
Further generators are currently in assembly. AFC Energy reports that strong interest in the JV’s zero-emission generators has been confirmed from Speedy Hire’s customers, with a growing pipeline established. We maintain our Buy recommendation and TP of 125p.
AFC has announced the successful Factory Acceptance Test (FAT) of its first 30kW H-Power Generator. The generator has satisfied all contractual tests and requirements of the FAT under its agreement with partner, Speedy Hire Plc (SDY LN), the tools and equipment hire services company. Successfully completing the FAT confirms that the zero-emission generator is now ready for sale to Speedy Hydrogen Solutions, the dedicated hydrogen powered generator joint venture. This news follows the recent announcement of the H-Power Generator receiving independent Attestation of Conformity for the CE Mark. There are no changes to our estimates with this update. Our valuation remains 100p; we believe there is significant potential upside as the Group’s power generator and ammonia cracker propositions are further developed
The UK NECT sector finally entered positive territory in February, with the Clean Hydrogen & Fuel Cell sub-sector the strongest performer, up 8.5%. Despite ending up just 1%, importantly, this signals an end to last years under performance that persisted into January. The Ex-UK NECT sector also posted positive returns of 1.7%, with all five sub-sectors ending the month higher. February was a relatively quiet month news wise for the UK NECT names (no news is good news!), but a notable event across our coverage was Equipmake’s successful fundraise combined with another new contract win in the bus retrofit space. In this short note, we provide updated monthly performance and valuation data across the NECT sub-sectors.
Attestation of Conformity certificate for CE Mark enables commercialisation of AFC Energy’s zero emission generators, providing customers and partners such as Speedy Hire# and Acciona with the assurance of a fuel cell generator product that is compliant with requisite laws and standards.
AFC Energy’s cracker benefits from being able to utilise heat and / or waste hydrogen by-products to lower power demand even further. Also, the cracker’s reactors reached full operation within 10 minutes of being started at room temperature, vs several hours for previous iterations, creating a flexible system that can rapidly respond to demand profiles.
2023 was a significant year for product validation, establishing the supply chain and securing tangible routes to market. In 2024E and beyond we expect rapid sales growth, new commercial relationships, and growing orders. Commercialisation has truly commenced. We maintain our Buy recommendation and TP of 125p.
The UK NECT sector was down 4.3% over January, a continuation of last years under performance, albeit it performed better than its global counterpart, largely reflecting a stronger performance in the Clean Hydrogen & Fuel Cell and Ag-Tech sub-sectors. Notable events across our coverage over the month included Ceres’ new licence deal with Delta Electronics and ITM Power’s interim results, which showed continued progress of the turnaround story. In this short note, we provide updated monthly performance and valuation data across the NECT sub-sectors.
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We believe this is highly positive news for AFC Energy and demonstrates strong recognition of the company’s advanced modular ammonia cracker technology. We maintain our Buy recommendation and TP of 125p.
Expectations for clean hydrogen production were high going into 2023, but a challenging macroeconomic backdrop and further subsidy delays led the global Clean Hydrogen sector to stall. While major subsidies did not flow as quickly as expected over 2024, the first tranches in Europe and the US should be awarded in the first half of 2024, which will remove one of the key hurdles to progress over 2023 – the speeding up of final investment decisions (FID), which we expect to translate into an upturn in the sector, particularly for electrolyser manufacturers. Ongoing supply chain challenges and costs will continue to be the main risks to scaling production to meet demand, but an easier regulatory backdrop should support broader sentiment. Against this difficult backdrop, share price performances will continue to be driven by company specific progress, and whilst there remain risks for most, there are also pockets of interesting opportunity, particularly across the Fuel Cell Sector. In this note we look back at a difficult 2023, forward to what we expect to be a better 2024 and update thoughts on the five stocks under coverage, particularly the key catalysts and risks for each over the year. Attracting and launching a JV with the UK's leading sustainable plant hire business shows the significant progress AFC has made over the last 18 months and its longer-term potential. Our revenue model and valuation continue to reflect only the known opportunities with Speedy Hire in the UK construction sector and ABB in the UK EV charging sector and exclude any contribution from any other markets, such as the Saudi and Middle Eastern markets, where AFC already has an exclusive distribution agreement with TAMGO, or in Fuel Conversion (Ammonia Cracking). With its dedicated hydrogen powered generator plant hire JV with Speedy Hire now launched, we see few near-term risks and reiterate our BUY. The biggest risk to Ceres in the short-term remains the delayed signing of the 3-way China JV. However, as we discussed back in December, we believe the impact of this to be limited and importantly do not think this would not suggest a wider issue with the technology or business’ ability to scale through world class partners. In our view, the most important are Bosch and Doosan, both of which remain on track to start scale manufacture this year. Our base case remains that the JV is signed and with the shares -48% over 2023, we think they have been oversold on this risk and welcome the brave to reassess the core long-term investment case. We reiterate our BUY recommendation with a slightly reduced 560p TP (from 620p). We welcomed ITM’s positive trading update in December with H1/24E revenues of £7.5m contributing to confirmed FY24E guidance. December’s 100MW capacity reservation with Shell is another positive development, but we continue to take a conservative view on project delivery given the many moving parts, including FID and plant build timings, most of which are outside of ITM’s direct control. Despite our forecasts showing £83m of cash by FY26E-end, close and prudent management of projects and inventory will be needed to ensure that the losses experienced during FY23A are not repeated and this remains a key risk. However, the 12M plan appears to be bearing fruit and ITM should benefit from what we expect to be easing project risks in Europe over 2024. With over 70% upside to our unchanged DCF-derived 90p TP we upgrade to BUY (HOLD). JMAT is a credible, low risk play in the Clean Hydrogen space, given established sales, a closed loop offering and a strategic approach to scaling through partnerships. However, with only 1% of Group sales sitting in Hydrogen Technologies (HT) today, there are other moving parts to consider as this business grows. Nevertheless, with the near-term risks that impacted over 2023 (declining metal prices, low auto volumes and rising interest rates) now reversing or easing, management being able to demonstrate that the energy transition growth businesses, including HT, have the potential to deliver better profitability and growth over the long-term should become easier. Our SoTP model attributes 60% of value to the growth businesses and we reiterate our BUY. Despite reaching a milestone of generating over NOK1bn (NOK1.2bn YTD 2023) in revenue and income (FY22A: NOK994m) for the first time, the focus of Nel’s Q3/23 results at the end of October was the 55% YoY decline in order intake. This was explained by increasing average order sizes and a lack of visibility on funding schemes in Europe delaying projects reaching maturity, for example, delays to the regulatory framework and current market conditions were the reasons behind HyCC recently cancelling its 40MW purchase order with Nel for its H2eron project. However, Nel remains the most mature of the pureplay electrolyser manufacturers and should benefit from what we believe will be an easing of project related complications in Europe over 2024, which should drive improving order intake and contract wins. Following forecast changes, our DCF model now values the shares at NKr12.7 (from NKr23) and we reiterate our BUY recommendation.
While the appetite for smaller companies is still relatively mixed, there are clearly some very good opportunities to invest in attractive businesses that are undervalued.
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We conclude that this industry leading proposition looks set to deliver a ‘game-changing’ proposition that should deliver material benefits to the environment, customers and both sets of shareholders.
AFC Energy plc Speedy Hire Plc
With ammonia expected to be a major globally traded carbon-free liquid fuel in the future, the leading capabilities of AFC Energy’s compact, efficient, highly scalable ammonia cracker technology are attracting industrial partners to engage in commercial discussions and partnerships.
AFC has unveiled a groundbreaking modular ammonia cracker system demonstrating viable and scaleable production of hydrogen in the UK using this method. The cracker system is designed to deliver 140 tonnes of fuel cell grade hydrogen each year. Hydrogen from the plant will initially be targeted for sale into AFC’s UK H-Power Generator deployments, including those with Speedy Hydrogen Solutions. Along with the recent purchase of the mobile storage and distribution assets of Octopus Hydrogen, AFC continues to develop a first mover integrated supply chain for hydrogen in the UK. There are no changes to our estimates with this update. Our valuation remains 100p, but we believe there is significant potential upside as the Group’s ammonia proposition is further developed.
These assets will provide AFC Energy with immediate logistics capability to supply hydrogen fuel for a growing number of its fuel cell generator sets across the UK, such as through its Speedy Hydrogen Solutions JV. We maintain our Buy recommendation and 125p TP.
AFC Energy has announced the purchase of the UK mobile hydrogen storage and distribution assets of Octopus Hydrogen, part of Octopus Energy Group. The aim is to provide a bespoke end-to-end hydrogen fuelling supply chain service, initially to service the growing number of H-Power generator sets across the UK, such as through Speedy Hydrogen Solutions. The consideration is undisclosed but minor. The assets are turnkey and require no additional capex for operation. The opportunity is to increase revenue by offering an integrated fuel solution to a growing Net Zero-focused customer base. We make minor adjustments to our cash for the transaction, our valuation remains 100p.
In July, AFC Energy and Speedy Hire announced the proposed launch of a dedicated hydrogen powered generator plant hire business servicing the UK and Irish construction and temporary power markets and today, in line with expected timeframes, both companies announce the launch of Speedy Hydrogen Solutions (SHS). Attracting and launching a JV with the UK's leading sustainable plant hire business shows the significant progress AFC has made over the last 18 months and its longer-term potential. Our revenue model and valuation continue to reflect only the known opportunities with Speedy Hire in the UK construction sector and ABB in the UK EV charging sector and exclude any contribution from any other markets, such as the Saudi and Middle Eastern markets, where AFC already has an exclusive distribution agreement with TAMGO, or in Fuel Conversion. AFC is delivering, on time, with impressive partners and in markets where regulation is driving the accelerated need for decarbonised power alternatives – we reiterate our BUY.
AFC Energy has announced the signing of a joint venture agreement with Speedy Hire (SDY LN), for the formation of a dedicated hydrogen power generator plant hire business, called Speedy Hydrogen Solutions Ltd (SHS).
We will be reviewing our forecasts as a result of today’s positive announcement and intend to publish new numbers shortly. We maintain our Buy recommendation and 125p TP.
This edition of New Energy Nuggets focuses on the role of offshore wind, and the viability of its position within the global energy mix as the world advances to net zero. Higher interest rates, cost escalation, and supply chain delays have contributed to several project cancellations, particularly in the US, and asset write downs. So how do we balance the need for offshore wind development against the current economic reality? We suggest there are still a number of cards governments, regulators, and companies can play, and therefore are confident the current issues are not terminal. Indeed, we believe a reset for offshore wind is long overdue and could lead to a new dawn for this key area of the renewable energy mix.
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AFC Energy has announced that the UK’s National Physical Laboratory has independently tested hydrogen generated by the Group’s ammonia cracker technology, achieving a critical purity of 99.99% hydrogen. This is the latest milestone in the accelerated development of its compact, modular, scalable ammonia cracker technology. We believe this puts AFC’s cracker technology on the path to full commercialisation. There are no changes to our estimates; we reiterate our valuation of 100p per share, significant potential upside to the current share price.
We believe this ability to crack liquid ammonia (with its high energy density and ease of transportation benefits) and deliver hydrogen at the point of use with this level purity, opens up a wide range of commercial applications and opportunities. We maintain our Buy recommendation.
Following notable progress in key markets and a recent management meeting and site visit, we update forecasts and refresh the investment case for AFC Energy (AFC). In this note, we specifically focus on the near-term opportunity in power generation within the UK construction market, where AFC’s pending joint venture (JV) with Speedy Hire, the UK's leading provider of tools and equipment hire services, which is timely, given recent regulatory developments and pending key milestones for the use and monitoring of diesel usage in the UK construction sector. We also note the recent progress with TAMGO to also distribute its Fuel Cell Generators in the Kingdom of Saudi Arabia and other MENA markets, which highlights the broader opportunity in power generation outside of the UK. The Ammonia Cracking market also provides further upside to forecasts longer-term. We upgrade to BUY (SELL), with a new 50p TP (12.7p).
We re-iterate our BUY thesis following AFC’s announcement of an exclusive distribution agreement with Saudi Arabia’s The Machinery Group LLC, trading as TAMGO. The agreement covers the Saudi Arabia/MENA region and follows AFC’s 2021 memorandum of understanding with Altaaqa (both Altaaqa and TAMGO are part of the larger Zahid Group). We view the TAMGO announcement positively as it puts momentum into AFC’s MENA growth strategy and allows AFC to potentially access this market estimated at US$1.6bn as of 2020 and predicted to grow to US$3.2bn by 2030. The TAMGO agreement swiftly follows AFC’s recent announcement of the Speedy Hire collaboration and further illustrates AFC’s strategy of accessing significant markets through collaborations with larger and better-resourced partners. Recently AFC also announced the receipt of a £4.3m grant award under the UK government’s Red Diesel Replacement (RDR) programme. Taken together the announcements all positively affirm AFC’s progress with its strategy to decarbonise hard-to-abate sectors such as construction and temporary power. While our numbers remained unchanged following 1H23 results, the interim report reflected positive momentum that together with the recent newsflow, supports our favourable view towards AFC. We re-iterate our BUY rating and TP of 85p.
AFC Energy has signed a potentially lucrative exclusive distribution agreement with Saudi Arabia’s The Machinery Group LLC, trading as TAMGO. TAMGO is an approved vendor to many of Saudi Arabia’s large infrastructure and mining projects including NEOM, Red Sea Global and Qiddiya. Under the Agreement, TAMGO will market and sell or lease to end-customers AFC’s H-Power Generators into the USD1.6bn industrial and off-grid power markets in Saudi Arabia and the greater MENA region. This agreement follows the July announcement of a JV with Speedy Hire (SDY LN) to roll-out the Group’s hydrogen fuelled generators in UK construction and temporary power markets. Separately, we make minor changes to our cash estimates, including for the recently awarded £4.8m (gross) grant under the UK Government’s red diesel replacement (RDR) programme. Our cash position in FY24e and FY25e is improved.
Together with the Speedy Hire JV announced in July 2023, today’s announcement evidence AFC Energy’s sure-footed moves to put material commercial agreements in place, underpinning its go-to-market strategy and readying for highly scalable future sales.
FY23 (YTD) has seen material technological, operational and commercial progress. The proposed Speedy Hire# JV provides a tangible pathway to mass product commercialisation into UK construction/temp power markets, one of several expected to commercialise in the coming months.
This collaboration follows several successful trial deployments by AFC Energy of “PowerTower” fuel cell generators with leading construction companies across the UK, including Kier#, Keltbray, Taylor Woodrow, Mace-Dragados and Colas Rail. Many of these are Speedy customers.
Following the announcement of a £4.8m UK government grant earlier this week, AFC will team up with Speedy Hire (SDY LN) to roll-out the Group’s hydrogen fuelled generators in UK construction and temporary power markets.
Consortium partners include Energy Solutions (a UK-based provider of hybrid battery and energy storage solutions) and Brett Aggregates (a quarrying company and the largest independent building materials aggregates group in the UK).
AFC Energy, with consortium partners, has been awarded a grant of up to £4.8m, from the UK Government’s red diesel replacement programme (RDR). This is welcome news and demonstrates to us that the UK Government wants to increase momentum to decarbonise large construction, mining, and quarrying projects. AFC was selected due to the advanced commercialisation of its hydrogen fuel generator solutions. We will adjust estimates following the upcoming interim results. We recently visited AFC’s facility for an update with management and a factory walkthrough, good progress is being made across the product range.
Operation of this facility near Hamburg, Germany, will position AFC Energy to be capable of supporting a growing number of fuel cell product deployments in Germany and more widely across Continental Europe. Existing partners in Europe include Acciona and Vinci.
Despite EU hydrogen policy remaining overly complicated, in our view, the passing of the two delegated acts last week provided some welcome clarity on certain aspects needed for investment decisions to be made. There has also been regulatory development further afield, particularly in India and the US, with the latter still leagues in front in terms of supporting homegrown manufacturing capacity. With flat performance across Europe (-1%) and North America (+2%) YTD, the outlook for the Clean Hydrogen sector in H2/23 is much improved, particularly in Europe, supported by news of the pending Thyssenkrupp Nucera listing. However, we are mindful that investors remain bruised and so continue to prefer companies with US exposure in the near-term, but also those with a strong track record of delivery. In this note, we update and collate thoughts on the European listed hydrogen names. PLUG, one of JMAT’s strategic partners in Hydrogen Technologies (HT), now aims to produce over 2,000T of hydrogen per day and ship 5GW of electrolysers per year by 2030, with the manufacturing capability to support 10GW of fuel cells and electrolysers, according to CEO Andy marsh at its recent investor day. Securing such an ambitious partner, arguably the leader in the sector today, is a strong signal of JMAT’s competitive advantage in the clean hydrogen space, which not only centers on its technical prowess, but also its ability to source the raw materials needed to reach scale. Continuing to secure partnerships like this, and more recently with Hystar in Europe, provides comfort that HT can be a significant growth business going forwards and we remain confident in the management team’s ability to deliver. With a powerful combination of a high-performing, highly manufacturable technology, an unrelenting emphasis on data and an experienced leadership team focused on expanding its partnership network by location, quantity, and scale, Ceres offers a unique and compelling investment. Alongside its longstanding, world-class partners (Bosch, Weichai, Miura, Doosan) in key, hydrogen progressive geographies (including China, Korea, Japan) in the Power (SOFC) business that will begin to generate c100% gross margin royalty revenue from just next year, notable partners have now been secured in the Hydrogen (SOEC) business (Shell, Linde, Bosch). Furthermore, completion of the 3-way China JV in SOFC represents a near-term catalyst, removing a key risk for the shares. There is also a main market listing due to complete on 29 June reflecting management’s ambition to be a leader in the sector and compete globally. Ceres remains our top pick in the sector, and we reiterate our BUY recommendation. Revenues and order intake of +68% and +105% YoY, respectively, were clear highlights of Nel’s Q1 results; the latter of which positively impacted by significant purchase orders (PO) from HH2E (€34m) and HyCC (€12m). We remain 10% ahead of revenue expectations for FY23E and continue to believe Nel has the headway to maintain its lead out of the European electrolyser manufacturers, despite increasing pressure from competitors like PLUG and Thyssenkrupp’s Nucera in its home market. With further capacity expansion at its new US Gigafactory in Michigan now underway, it is also well placed to continue its strong US growth, which is now the largest contributor to its electrolyser business. We expect order momentum to continue, which will drive further upgrades. Following the transparent and frank presentation from new CEO Dennis Schulz on the issues that need to be resolved in January, we look forward to an update on progress with the 12-month plan at the strategy update next month. With the backing of significant partners, evidenced by the two 100MW RWE Lingen project orders with Linde that were announced at the interims, ITM has the potential to benefit from emerging policy clarity in Europe, but it needs to get the basics right first. A 50bps increase to our WACC to 10.5% since our last numbers update in January results in a decrease in TP to 88p from 106p. Ahead of FY23 results and the strategy update on 27 July, we retain our HOLD recommendation. McPhy is struggling to stand out as competition in the electrolyser market intensifies, despite boasting a cash balance of €135m. It’s not just Nucera that is looking to raise up to €600m in its planned IPO, other alkaline electrolyser companies like Green Hydrogen Systems (GREENH) and HydrogenPro (HYPRO) have also taken advantage of a favourable window to raise fresh funds. Furthermore, with Nel, arguably the market leader in alkaline, making strong gains at sharply lower prices of c€0.3m per MW, we believe McPhy will struggle to make the returns on sales that we had previously forecast. Without a strategy to compete in the US, McPhy may also struggle to match the growth rates of its major rivals. Our DCF model, which now assumes a 10% EBIT margin in the long term as opposed to 15% previously and a 1% increase in WACC due to higher risk-free rates, generates a valuation of €7.5 per share (€13.4). We, therefore, move our recommendation to SELL. We note from Refinitiv that since our last note in April the house brokers have cut their revenue forecasts for FY23E from £11-13m to less than £1m. We have done the same from our estimate of £4.2m as we are none the wiser on near-term prospects. Perhaps the more important question is whether their estimates of c£6m and c£11m in FY24E and FY25E, respectively, are more realistic. We must assume that short-term rentals to constructors alone will not achieve these targets; it will be realised from first sales to plant hire companies. If hydrogen is still very much an “ESG tick box” exercise in the construction industry, then the main risk is the extent to which gross profits are sacrificed to attract such orders. In any case, even if we assume 25% gross profit, our model suggests that more equity will be needed in FY24E. Our revised forecasts now generate a DCF value of 12.7p (15.6p), hence, we maintain our SELL recommendation.
AFC CWR ITM JMAT MCPHY ALMCP NEL NEL
AFC Energy is focused on a phased commercialisation strategy, leading with construction / temporary power market products, followed by EV charging, distributed power, data centre and maritime applications. We reinstate our Buy recommendation, with increased clarity on commercialisation strategy, rebased forecasts, and a TP of 125p.
We initiate on early-stage fuel cell technology play AFC Energy, with a target price of 85p and a BUY rating. AFC has differentiated itself by targeting the displacement of diesel in off-grid/grid-constrained end market niches. We highlight total addressable market (TAM) size of c.5GW by 2030, for three key end markets: construction and EV charging for its fuel cell technology, and the ammonia cracker space for its fuel conversion technology. Our TP assumes an average market share of just 8% across AFC’s target market segments. AFC’s “disruptor” technology is gaining market traction with notable tie-ups inked with ACCIONA and ABB E-mobility.
Progress on product development, field validation and early orders is positive. We reintroduce our estimates. More orders now need to flow. Following recent full year results and updates with management we reintroduce our estimates. AFC has significantly accelerated development and deployment of the S Series family of generators and secured initial orders. Focus on the construction sector with its high usage of off-grid diesel has attracted good customer interest. The Group’s new 30kW-50kVA generator and storage unit is tailor-made for the important mid-scale construction market; the unit will be commercially available later this year. Further out, development of the high power 200kW liquid-cooled unit for ABB and other potential customers is nearly complete; and the new portable ammonia cracker could become a game changer in the efficient use of this carrier fuel in maritime and other sectors. AFC has the building blocks in place for full commercial roll-out of now well-tested products.
We note that results of the year to October 2022 were published last Friday evening and that revenues at £0.6m (£2.2m including deferred revenue) were well below expectations of c£4m and flat compared with FY21A. As there was no follow up analyst/investor meeting on Monday, and none seems to be imminent, we have limited information to test our hardware sales model against the outlook for FY23E for “growing revenue from system rentals and hydrogen sales with an already contracted pipeline of deployments and growing pipeline of prospective rentals”. If the rental model, displacing diesel generator hire, is the main source of revenue in the near future, then it's not clear how FY23E revenue expectations of £11-13m revenues will be met. We have cut our FY23E revenue estimate by more than 50% to £4.2m and our revised DCF model now generates a target price of 15.6p (from 21p). We maintain our SELL recommendation.
The balance sheet remains strong with £40.2m of cash at YE (2021: £55.4m). Annual “cash burn” – relating to fixed overheads – was reported as £11.2m, or approximately £0.9m/month.
Progress on product development and validation has been significant over the past year. Increased focus on emissions targets and energy security, combined with the recent UK/EU ban on Russian diesel, continues to drive momentum for replacing diesel with clean fuels including hydrogen. Focus on the construction sector with its high usage of off-grid diesel, has attracted significant customer interest and generated first revenue from the S Series H-Power Towers. EV charging and maritime remain attractive opportunities for the medium term. AFC has reported full year results to 30 October 2022, as expected, revenue during this development phase is minor. The cash burn was in-line with our expectations, but year-end gross cash was slightly better. The revenue pipeline is growing, and AFC has made good progress with ABB and ACCIONA, among other customers. That said, with a change of Zeus analyst we place our estimates and valuation under review. We are confident that our valuation of the medium-term opportunity for AFC’s market leading technology is significantly higher than the current share price.
Acciona, one of Europe’s largest construction companies, at the forefront of decarbonisation of construction site operations, describes its partnership with AFC Energy as “very valuable” and says it is confident that AFC Energy’s new 50kVA fuel cell generator “will have wide reaching adoption across the construction industry”.
The fuel cell system was initially seen primarily operating as a high-power EV charging system with ABB E-mobility. However, ABB now also intends to use this platform in maritime and larger-scale off-grid and critical back-up power markets, including data centres.
Having a modular, highly scalable proprietary technology to ‘unlock’ hydrogen from liquid ammonia for use in applications such as stationary power, heavy duty transportation and shipping, could lead to multiple material commercial opportunities for AFC Energy.
Having completed successful deployments and received highly positive customer feedback from Acciona, Kier Group, Keltbray and Mace-Dragados, some of these have extended their lease agreements. Taylor Woodrow (a division of Vinci) and Colas Rail are amongst new customers.
AFC has provided a useful update on the deployment of the H-Power Tower product range, following system validations in 2022. H-Power Towers have now been leased for more than 7,000 hours in the UK and European construction markets, providing valuable off-grid power solutions to customers. In addition, contracts have been signed for more than 8,000 hours of H-Power Tower lease hire in 2023 to date. AFC also reports that it has a growing order book supported by an increase in customer proposals. At this stage, pending the year-end update, no financial details have been provided. Separately, the Zeus team visited AFC at the Cranleigh head office and testing & manufacturing facility in late November 2022. We held extensive discussions with management and the product development team and saw for ourselves the considerably upgraded facilities. AFC has also strengthened the management team and business development function, with the appointment of Peter Dixon-Clarke as CFO in December 2022, and Robin Koeken as Business Development Manager on 7 March 2023. AFC is making strong commercial progress and developing the platform for future growth.
Robin has a strong history of growing sales and driving business development across the energy sector. Based out of the Netherlands, a key location for hydrogen and ammonia into the EU, Robin will work with AFC Energy’s business development functions across Europe and the UK.
Talk of a deal between the US and EU on green hydrogen is increasing and we now think this is the only way Europe can create and sustain any meaningful market share in green hydrogen production longer-term. Whilst the US began walking its talk last year through the IRA, in our view, the EU remains too bureaucratic - it is still arguing the definition of green hydrogen - to successfully go alone on the level of detail required to secure this in Europe. Meanwhile, whilst current hydrogen production in China is taking an “any colour goes” approach, an acceleration in patent filings, HPAs and private deals suggests it is also hot on Europe’s heels to develop a clean hydrogen economy. In this note, we update and collate thoughts on the European listed clean hydrogen names, where we continue to prefer those with US exposure, at least in the near-term. The risks to revenue forecasts are growing. Since our last update in August 2022, there has been little news to suggest that the commercial orderbook is building and that revenue expectations for 2022-24 will be met. AFC needed to deliver substantial revenues in H2/FY22 to meet the FY22 expectation of over £4m revenue having registered revenues of just £0.28m in H1/FY22. As there has been no trading update to suggest otherwise, we haven’t cut our revenue forecasts. However, an increase in the risk-free rate to 3.2% has cut our DCF-derived TP from 29p to 21p. Therefore, we cut our recommendation to SELL (HOLD). Ceres’ FY22 trading update at the end of January importantly provided an update on the ongoing 3-way JV with Bosch and Weichai in China. With the structure of this now agreed, Ceres is awaiting the resolution of a few commercial points being finalised by Bosch and Weichai, which remains a significant share price catalyst, one of several that should land in the short term. We update our FY22E forecasts to reflect the c£21m of total income and expected c60% gross margin reported at the trading update. Despite our DCF-derived TP falling by 15% to 808p (from 950p) following a further increase in the risk-free-rate since we last published in September, Ceres remains a key pick over 2023 given the notable near-term catalysts. We reiterate our BUY recommendation. Following the interim results, new CEO, Dennis Schulz, previously of Linde Engineering, outlined a sensible and much-needed 12-month plan “to transform ITM from an R&D culture company to a professional and credible delivery organisation ready for volume manufacturing”. We applaud the transparency provided and frank discussion around the issues that need to be resolved, but with uncertainty remaining around project delivery and the long-term growth potential, we need to see signs of the 12-month plan being delivered. Earlier this month, we updated our forecasts, which resulted in our DCF-derived TP reducing by 20% to 106p (from 132p). We reiterate our HOLD recommendation. On 31st January, JMAT announced the first of its targeted strategic partnerships in Hydrogen Technologies (HT) with Plug Power (PLUG), the current leader in the hydrogen economy with the most ambitious revenue and capacity expansion targets. In our view, securing such a high profile first partnership is a clear statement of intent from new CEO Liam Condon and a strong signal of JMAT’s competitive advantage in the clean hydrogen space, which provides comfort that HT can be a significant growth business going forward. As such, we are more confident in the long-term potential of the newly created growth businesses and the management team’s ability to deliver. JMAT remains a top pick for 2023 and we reiterate our BUY recommendation. After a lacklustre H1/22, McPhy restored some credibility in H2/22 with solid year-on-year revenue growth of 37%. However, firm orders in H2/22 were a tad disappointing, being 17% below H1/22. With an order backlog of €31.3m at end-22 only slightly ahead of €29.1m at the mid-22 stage, we are not seeing the “commercial momentum” that management are claiming. Investors must hope that the 148MW and 56 stations pipeline, where McPhy has been identified as a preferred partner and/or selected supplier, is converted to firm orders. A clear EU strategy to encourage the consumption of green hydrogen, like the US IRA, would also help. Otherwise, the planned Gigafactory in France and tripling of the Italian electrolyser factory capacity would remain largely unutilised. An increase in the risk-free interest rate from 1% to 2.3% cuts our DCF-based TP to €13.4 (€15.3). With limited downside, we keep our recommendation at HOLD. Following further orders and project wins early into FY23, we recently acknowledged that our November concerns were misplaced. Following increases in our short-term revenue forecasts but also the inclusion of 2.8GW of further US capacity to account for recently announced plans to expand here, our DCF-derived TP increased to NOK23 from NOK13 and we upgraded our recommendation to BUY. Given its existing US capacity and traction with the likes of GM, DoD, and DoE, we think Nel is well placed to capitalise on the increasing momentum in the US for clean hydrogen on the back of the US IRA. Nearer-term, we view securing a firm PO for the FEED agreement for the recent HH2E project (expected in H1/23) as a significant catalyst for the shares. We reiterate our recommendation to BUY.
Demonstrating leadership in diesel generator replacement AFC Energy has now deployed several fuel cell systems in the field. These are being operated by some of the UK and Europe’s largest construction companies – including Acciona, Mace-Dragados, Kier Group# and Keltbray – providing emission-free on-site power. Feedback from these field-trials has been extremely positive. AFC Energy has been demonstrating the capability of its fuel cell power systems in real world environments and their ability to use energy-dense liquid hydrogen “carrier fuels”. In this podcast, AFC Energy's CEO Adam Bond speaks to Peel Hunt’s Nick Walker and John Gilbert about the company’s USPs, customer feedback from field trials, next steps for its ABB partnership, and the ‘tipping point’ for mass market adoption of its emission-free off-grid power products. Nick.Walker@peelhunt.com, John.Gilbert@peelhunt.com Click on the image below to listen to Nick and John’s interview with Adam Bond, CEO of AFC Energy. #Corporate client of Peel Hunt
That unit operated on hydrogen fuel and liquid methanol fuel (in conjunction with a methanol reformer). Feedback from these companies has been highly complimentary in terms of emissions reduction and operability of the equipment.
AFC Energy’s fuel cells were making strong progress in-the-field, gaining positive operating data and validation from Acciona for the performance of its PowerTower fuel cells, and now for the ability to use liquid methanol as a fuel.
Mace Dragados to deploy a PowerTower on a London Site AFC Energy has announced that Mace Dragados (a JV between its strategic partner, UK construction company Mace Group, and Spanish construction group Dragados, part of ACS Group) is to deploy a hydrogen-fuelled, emission-free PowerTower power system. The system will be leased for deployment on a high-profile UK infrastructure project in London in 2H22. This is the fourth major construction group to agree to deploy a PowerTower, after similar agreements with Acciona, Keltbray and Kier#. We retain our Buy rating and 195p TP. Nick.Walker@peelhunt.com
Interim results from AFC contain few surprises and the group remains on track for the full year. The two main deltas versus our (unpublished) forecast were that the £2m stage payment from ABB were treated as deferred income rather than as revenue and that income from R&D tax credits was below our estimate. The first issue is an accounting issue which has no bearing on cash flow, while the second is likely a timing issue. On its own, the tax issue explains why period end cash, at £48.6m, was £1m below our forecast but this should reverse in H2.
Interim results for the 6M to 30 April 2022 Key events in the period were a £4m order from ABB for a 200kW S-Series fuel cell system, commercial launch of PowerTower – an emission-free power generator for the construction industry – and securing construction site deployments with Acciona, Keltbray and Kier#. The company secured a second Extreme E racing series contract, and ‘approval in principal’ for an ammonia-based fuel cell shipping propulsion system. We are seeing AFC Energy’s systems moving out of the lab and into the field, supported by quality commercial partners. Buy, TP 195p. Nick.Walker@peelhunt.com
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# and fuel cell deployment AFC Energy has announced a partnership with Kier, one of the UK’s largest construction companies. Kier is to deploy an AFC Energy Power Tower fuel cell unit on a live construction site in 2H22 to gain experience and validate performance. This follows the formation of similar partnerships with Acciona, Keltbray and Mace, suggesting clear evidence of construction companies’ desire to align with AFC Energy to deploy and evaluate its leading emission-free fuel cell power solution as an alternative to diesel generators. We retain our 195p TP and Buy. Nick.Walker@peelhunt.com
AFC Energy launches Power Tower EV Charging Platform AFC Energy announced the launch of “Power Tower EV”, a ‘deploy-anywhere’ plug-and-play fuel cell power system with an integrated ABB EV charging platform. The “Power Tower EV” is a specially designed variant of AFC Energy’s Power Tower fuel cell system that was launched in March 2022. This EV variant integrates ABB’s Terra AC solution and can be deployed anywhere to provide reliable EV charging where there is either no grid available, or where the grid is constrained. We retain our Buy recommendation and 195p target price. Nick.Walker@peelhunt.com
Analysts - Lacie Midgley +44 (0)20 7886 2769 & Sanjay Jha +44 (0)20 7886 2805 On 8th March, the European Commission (EC) announced its REPowerEU communication, which outlined the EU's plans to make Europe independent from Russian fossil fuels well before 2030. The communication also highlighted a series of measures to respond to soaring energy prices in Europe. Under REPowerEU the EU increased its ambition and hydrogen strategy objectives by adding a further 15 million tons of renewable hydrogen (10 million tons to be imported and 5 million tons produced domestically in the EU). This new amount would contribute to reducing dependence on imported Russian gas by 25-50 billion cubic metres (m3) by 2030. Against this backdrop, we review and recap on the investment cases of the six Clean Hydrogen investments under our coverage. Since our last note in January, the shares have trodden water despite positive news flow relating to renewal of the Extreme E contract and agreements with ACCIONA and Keltbray to deploy its Hybrid Fuel Cell (HFC) technology by the middle of this year. This is partly because market expectations on the rate of commercial adoption were set too high in 2020 and partly because the advantages of fuel flexibility afforded by next-generation systems have not been fully tested. Following the FY21 results announced in March, we have found no reason to change our forecasts, hence our DCF-derived target price remains unchanged at 41p. We maintain our HOLD recommendation. On Thursday 17th March, Ceres Power released FY21 results that were pleasantly a non-event with total income +44% to £31.7m and cash and investments of £250m both flagged at the January trading update. The 39% increase in gross profit was a highlight with a sector-leading gross margin of 66% underlining the strength of Ceres' model driven by IP licensing. Our forecasts now include FY24E where we calculate high-margin royalties from the Doosan (50MW) and Bosch (200MW) Power (Solid Oxide Fuel Cell (SOFC)) programmes of £9.5m. Despite Ceres being the only company in the wider sector that has visibility to significant, recurring royalty revenues the shares have continued to lag both the PG Global Clean Hydrogen and Global Fuel Cell Indices by 32% and 17%, respectively, over the last six months. We reiterate our BUY recommendation with a TP of 1870p. ITM Power’s interim results at the end of January contained encouraging signs that the market is reaching industrial scale and, more importantly, that green hydrogen cost parity is close against a backdrop of increasing carbon prices. With £390m of cash to execute on its ambitious growth plans to 5GW by the end of 2024, ITM Power remains well placed to capitalise on the opportunity for green hydrogen and its role in providing energy security through storage and lower price volatility. In our view, the current share price continues to present an attractive buying opportunity. We reiterate our BUY recommendation and 692p TP. We have downgraded our revenue forecasts for 2022-23 by 21-23% to reflect the slower-than-expected launch of major projects. However, after a flat 2021, we still expect top-line growth to resume from this year as the increase in firm orders rebounded in H2/21. Expansion plans remain ambitious but credible thanks to a strong balance sheet (net cash of €177m at end-December 2021). While management has understandably cautioned against all imaginable consequences of the Russian-Ukrainian conflict, this event has rejuvenated and accelerated the EU’s plans to establish green hydrogen as a sustainable source of energy. The cuts to our revenue forecasts and higher-than-expected losses in the near term have driven our DCF valuation down from €33 to €27. However, we maintain our BUY recommendation. Nel reported all-time-high revenues of NKr248.1m in Q4/21, up from NKr229.1m in Q4/20 and ended the quarter with a record order backlog and a pipeline representing more than 22GW of installed electrolyser capacity. We update and roll forward estimates following the FY21 results in February, forecasting a 2-year revenue CAGR of 63%. With plans to scale-up further following the raised ambitions for Clean Hydrogen in the EU under the REPowerEU commitments and over NKr 4 billion in cash following the recent private placement to fund further expansion, we continue to believe NEL is well placed to capitalise on the transition away from fossil fuels. We reiterate our BUY recommendation with an increased TP of NKr18.6 (NKr17.2).
AFC CWR ITM ALMCP NEL 0QTF 0E4Q
Keltbray to deploy AFC Energy Fuel Cell System in UK AFC Energy has announced a collaboration with Keltbray, a leading UK-based construction and engineering contractor. Keltbray has agreed to lease an AFC Energy fuel cell system and deploy it on one of its construction sites in 2Q22. The companies have outlined a roadmap for further system deployments from late 2022 and will lobby plant hire firms to transition away from diesel generators in favour of low and zero-emission power systems. We retain our Buy rating and 195p TP. Nick.Walker@peelhunt.com
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.
FY results for year to 31 Oct 2021 AFC Energy announced FY results for the year to 31 Oct 2021, largely in line with our forecasts. 2021A was a highly positive year in terms of rapid development of its new S-Series high energy density fuel cell technology, positive demonstration of its ability to use liquid ammonia and methanol fuels and saw several new commercial partnerships added. AFC Energy reported it has commercial agreements in hand worth £5.0m and an increased pipeline in areas of EV charging, construction, temporary power and datacentre power. We maintain our Buy recommendation and 195p TP. Nick.Walker@peelhunt.com
The Group is optimistic about signing additional commercial agreements in 2022 but the main focus will be on product supply to ABB and field trials with Acciona both of which could result in material new orders. Results for FY22 reflected higher investment than we expected. Our revenue forecasts for FY22 and FY23 are unchanged but our spend projections are a fraction higher. Our long term model and valuation are under review to reflect positive changes to the Group’s selling model and to incorporate the exciting potential in the Marine and Data Centre markets.
AFC has released some positive news confirming that Acciona has agreed to deploy the first of its new Hybrid Fuel Cell systems in Spain this year. We anticipate some strong growth momentum over time from this, albeit our forecast assumptions remain unchanged for now. The investment thesis remains enticing and we reiterate our 186p valuation per share.
Competitive replacement for diesel generators and engines AFC Energy is a world-leading alkaline fuel cell technology company, developing, demonstrating and commercialising unique, highly scalable and economically compelling emission-free, distributed power generation products to replace diesel engines and generators in a wide range of off-grid applications. As the world decarbonises, we believe its products’ ability to use low-cost, energy-dense liquid ammonia as a fuel – as well as methanol and hydrogen – gives it compelling competitive advantages. Global strategic partners are lining up to commercialise. We initiate with a Buy and a 195p TP. Nick.Walker@peelhunt.com 75-page note
We recently had calls with CEOs of two new additions to the UK New Energy sector ATOME, the hydrogen projects developer and Libertine, the developer of technology for hybrid renewable fuel powertrains. We also visited the HQ and factory of alkaline fuel cell developer AFC Energy, meeting with the CEO, CTO and Head of Engineering. Three great meetings worth sharing details on with clients. None are formerly covered currently but in our research domain of hydrogen, batteries and renewable fuels
AFC ATOM LIB
The group’s update expresses confidence in achieving published FY22 revenue forecasts and reveals a new Hybrid Fuel Cell (HFC). The update summarises the group’s agreements with ABB, Urban-Air Port, Mace, Altaaqa, ACCIONA and Julich and the entry into the maritime sector with VARD. The HFC platform will add fuel flexibility to the group’s offering, enabling the use of methanol as a feedstock. The investment thesis, which we refreshed in September, remains enticing and we reiterate our 186p valuation per share.
AFC Energy has announced that its “S” Series hydrogen fuel cell system and ammonia cracker have been selected for the Norwegian ZeroCoaster bulk cargo ship design. The proposal has also been awarded “Approval in Principle” status by DNV, the international certification agency. The announcement is another significant endorsement of AFC Energy’s technology and the group’s biggest step forward in Maritime. This is further endorsement of our investment thesis, which was refreshed in September, which points to 188p valuation per share excluding this huge opportunity.
AFC Energy has announced a £4m order for a fuel cell system from ABB. It has also granted warrants to ABB to subscribe for 6.8 million new shares at 58.8p (Friday’s closing level). If exercised, these would give AFC Energy another £4m in fresh equity. The announcement is very positive news, representing a significant endorsement of AFC Energy’s technology. We anticipate the shares will react well to this as it not only significantly de-risks our 2022e forecast but also endorses our investment thesis, which was refreshed in September and 188p valuation per share.
The forthcoming UN Climate Change Conference (known as COP26) should result in an acceleration of governments’ actions to reduce CO2 emissions. This will result in an acceleration of customer end-user adoption rates which would be positive for AFC Energy which is developing zero-emission solutions for the EV-charging, construction, data centre and marine markets.
Our conviction in AFC Energy is fundamentally premised on our appreciation of the unique attributes and qualities of AFC Energy's technology. We have long believed its systems are robust – chemically and otherwise. Nevertheless, we are very impressed with the delivery achieved by AFC Energy's systems in the most arduous conditions on the planet. To have successfully featured as the primary power source to charge the vehicles in each of the first three races is a very strong statement that unequivocally proves that AFC Energy's systems have the inherent qualities to replace diesel generators with 100% emissions free hydrogen power. Today's announcement strengthens our high-conviction confidence in AFC Energy's technology, which remains the foundation of our high-conviction, long-term growth outlook for the company. We reiterate our fair value estimate of 159p.
Joiners No joiners today. Leavers No leavers today. What’s cooking in the IPO kitchen? Peel Hunt, a UK mid and small-cap specialist investment bank, announces its intention to seek admission of its ordinary shares to trading on AIM. Admission is expected to take place on or around 29 September. In conjunction with a placing of Ordinary Shares the Company will be conducting an intermediaries offer. Oxford Nanopore Tech—expected intention to float on the LSE (Standard). The company behind a new generation of nanopore-based sensing technology, whose first products enable the real-time, high-performance, scalable analysis of DNA and RNA. Timing and offer TBA. Fruugo.com which owns and operates a high growth and profitable global cross-border marketplace employing its own proprietary technology and data science, announces its intention to seek admission of its shares to trading on AIM. Due early Oct. Timing and offer TBA. Optima Health is the UK's leading provider by size of technology enabled corporate health and wellbeing solutions. To join AIM late Sep. Offer TBA. Petershill Partners, Expected Intention to Float on the London Stock Exchange. Petershill Partners, a leading investment group providing bespoke capital and strategic solutions to some of the world's best performing alternative asset management firms. Petershill Partners today comprises minority investments in 19 high-quality Partner-firms, previously held in private funds managed by Goldman Sachs Asset Management (GSAM). The Partner-firms have US$187 bln of aggregated assets under management. The Ordinary Shares would be admitted to the Premium Segment of the Official List of the FCA and to trading on the Main Market of the LSE. The Offer would comprise (i) the issue of new Ordinary Shares, raising Gross Primary Offer Proceeds of approximately US$750m to fund ongoing expenses and acquire further Alternative Asset Manager Stakes and (ii) the sale of existing Ordinary Shares in order to achieve a free float of 25%.Timing TBA GreenRoc Mining to join AIM. Established in March 2021 as a UK public limited company for the purpose of acquiring all of the Greenlandic mining assets of Alba Mineral Resources plc and progressing the exploration and development of those assets. The assets in question are the Thule Black Sands Ilmenite Project, the Amitsoq Graphite Project, the Melville Bay Iron Project and the Inglefield Multi-Element Project. Greenland will be the main country of operation. Gross funds raised on admission: £5.12m. Anticipated Mkt Cap on Admission: £11.120m. Due mid-September Responsible Housing REIT to join the Main Market (Premium) in late September raising up to £250m. The Company's investment objective is to generate a consistent and sustainable income-based return from the provision of Supported Housing accommodation assets and aligned sectors. Blackfinch Renewable European Income Trust plc, a closed-end investment trust established to invest in a diversified portfolio of mixed renewable energy infrastructure assets, is considering proceeding with an initial public offering and has published a registration document. Raising up to £300m. Due on the Main Market (Premium) in October. Central Copper Resources, a company focused on delivering a high grade copper project into production and exploration of assets in the Democratic Republic of the Congo (DRC) and in the Republic of Zambia to join AIM. By 2022, CCR intends to be ready to commence the project financing of its Mbamba Kilenda copper project. Offer TBA. Due Late September. Euro Sun Mining Inc (TSX:ESM) seeking to join the Main Market in Q3 2021. The Company's main asset, the Rovina Valley Project, which contains the Rovina, Colnic and Ciresata deposits, is one of the largest undeveloped copper-gold projects in Europe, holding approximately 400Mt of confirmed resources containing 7.0m ounces of gold and 1.4 bn lbs of copper. Our daily digest of news from UK listed Small and Mid caps Banquet Buffet AFC Energy 54.25p £398m (AFC.L) The provider of hydrogen power generation technologies announced the signing of a Hydrogen Fuel Cell Supply and Collaboration Agreement with partner, Urban-Air Port Limited. Urban-Air Port is a leading UK designer, developer and operator of innovative ground infrastructure for the growing demand in autonomous airborne drones and electric take-off and landing ("eVTOL") passenger vehicles. In partnership with Hyundai Motor Group announced today, Urban-Air Port plans to develop 65 electric urban air ports worldwide, adopting sustainable energy solutions. AFC Energy to lease a zero emission hydrogen power generator to Urban-Air Port's world first deployment, "Air-One", in Coventry, to support the power needs of vehicle charging infrastructure. "Air-One" is the first of more than 200 discreet sites identified for prospective development by Urban-Air Port in the next five years. Urban-Air Port and AFC Energy will evaluate the deployment opportunities of zero emission, hydrogen fuelled off-grid power to future sites within the portfolio of projects under development. Ariana Resources 4.7p £51.3m (AAU.L) The mineral exploration and development company with joint-venture gold mining operations in Europe announced recent resource drilling results obtained from the Kepez North area of the Kiziltepe Sector. Kepez North is part of the Zenit Madencilik San. ve Tic. A.S. Joint Venture with Proccea Construction Co. and Ozaltin Holding A.S. and is 23.5% owned by Ariana. New intercepts from surface for the Kepez North scree returned: 3.2m @ 11.53g/t Au + 168.7g/t Ag and 5.3m @ 3.06g/t Au + 62.0g/t Ag. Infill resource drilling results from the Kepez North vein include: 8.8m @ 6.23g/t Au + 26.0g/t Ag and 6.4m @ 6.23g/t Au + 57.8g/t Ag. Corcel 1.55p £6m (CRCL.L) The natural resource exploration and development company with interests in battery metals and flexible energy generation and storage, announces that, further to the announcement on 5th May 2021, Corcel has been notified that the freehold of the Burwell industrial site at 70 Reach Road has now been sold to an investment company. The site constitutes an existing brownfield industrial development as well as an adjacent plot where the Company intends to construct a 50MW battery energy storage system. Discussions with the new site owners are underway and the Company will make further updates as appropriate. Galileo Resources 1.38p £14.4m (GLR.L) Further to its announcements on 26 January 2021, 2 August 2021 and 1 September 2021, the Company announces that all the conditions precedent have been met in relation to its conditional licence sale agreement with ASX listed Sandfire Resources Limited (ASX:SFR) entered into on 22 January 2021 and varied on 30 July 2021 and 1 September 2021. Unless indicated to the contrary defined terms in Galileo's announcement dated 26 January 2021 in relation to the Licence Sale Agreement have the same meaning. Completion of the Licence Sale Agreement is anticipated to occur on or around 22 September 2021. Sandfire will: at Completion pay to the group US$1.5M in cash for the 9 Kalahari Copper Belt licenses being sold ; and following Completion issue 370,477 Sandfire ordinary shares to the Company with a current market value A$2.43M (approx. US$1.79M) based on the closing Sandfire share price of A$6.55 per Sandfire share on 14 September 2021 (being the last trading date before the date of this announcement) for a right of first refusal in relation to the 13 Kalahari Copper Belt licences retained by the Company. Kibo Energy* 0.265p £6.6m (KIBO.L) The renewable energy focused development company, has signed a Heads of Terms with EQTEC plc (AIM: EQT), a world-leading gasification solutions company, to acquire a 54.54% interest in the proposed 25 MWe Billingham waste gasification and power plant at Haverton Hill, Teesside, UK. It is expected that Kibo will acquire a 54.54% equity stake in the Project SPV;· EQTEC will retain 45.46% equity in the Project SPV; The Project is at advanced stages of development with a concept design for the full plant produced, planning permission approved, grid connection offer secured & technical due diligence with technology insurance providers completed. The Project is expected to annually process 200,000 metric tonnes of non-recyclable everyday Municipal Solid Waste into 25 Mwe of green electricity, enough to power 50,000 homes. Kibo's initial funding contribution will be £3m paid as an equity subscription, plus convertible shareholder loan facilities in accordance with the Agreement. In accordance with the Agreement, Kibo will have the option to provide additional convertible shareholder loan facilities to the Project SPV and/or convert future project development fees into further equity in the Project in the future; Project rights, held by the Project SPV, include all technology license agreements, all equipment supply and maintenance agreements with EQTEC and all rights to the site under the existing agreements with Scott Bros. Enterprises Limited. Following completion of the transaction, EQTEC and Kibo will invoice for their respective project development services to the Project SPV; EQTEC will remain as the lead development manager on the Project, providing the design and core Advanced Gasification Technology and subsequently retaining the maintenance portion of the O&M contract upon commissioning. The Company is pleased with the progress it has already made to secure the funding required for this transaction. NetScientific 116p £24.3m (NSCI.L) The active holding company in life sciences and sustainability technology investment, announced an initial £1m investment in Martlet Capital Limited which intends to acquire a portfolio of minority interests in the Cambridge high-tech cluster. NetScientific's fully-owned subsidiary EMV Capital Limited has co-led a first close of a £12m investment into Martlet Capital, which has yet to start trading, alongside leading private office Saranac Partners. The investment is expected to enable Martlet Capital to complete the acquisition of a portfolio of over 50 minority investments of Marshall of Cambridge Limited, the "Martlet Capital" trading name and the team managing the investments. The investments include companies in life science, healthcare, cleantech, sustainability, industrials and semi-conductors, many with co-investments by some of the leading Cambridge and UK investment groups. Martlet Capital is targeting an eventual total raise of approximately £22m over the next 6 months, which would enable significant further investment into selected portfolio companies and new investment opportunities. Martlet Capital aims to become the leading investment house for early-stage Cambridge technology cluster companies. PCI PAL 74.5p £48.7m (PCIP.L) The global cloud provider of secure payment solutions for business communications, notes the press release from its competitor Semafone Limited that it has filed a lawsuit in both the UK and US relating to alleged patent infringements by PCI Pal. The Directors strongly refute the claims being made by Semafone and believe that the Semafone claims have no basis. As a technology company, PCI Pal has consistently obtained specialist patent legal advice (both within the UK and US) and is wholly confident that no patent infringement is taking place. PCI Pal will defend itself robustly against all allegations of patent infringement. Symphony Environmental Technologies* 25.5p £45.1m (SYM.L) The a global science-based group that makes plastic and rubber products "smarter, safer and sustainable", announced its interim financial results for the six-month period ended 30 June 2021. Group revenue of £4.9m (H1-2020: £4.8m) which on a constant-currency basis, would have shown a 13% increase to £5.4m. Gross profit of £1.9m (H1-2020: £2.2m) due to higher proportion of finished goods in the product mix. Loss before tax of £0.6m (H1-2020: profit £0.02m). Basic loss per share of 0.29 pence (H1-2020: earnings per share of 0.01 pence). Cash generated in operations £0.3m (H1-2020 cash used £0.6m). D2p; substantial progress in many product areas including an increase in customer trials and product-tests currently underway. Significant potential sales identified in many of the current pipeline projects with a number expecting to commercialise in the near term. Continued investment in Symphony's sales team, and new Head of Innovation appointed to accelerate the commercialisation of the Group's growing portfolio of new and highly innovative products. Budgeted increase in one-off professional fees including legal, communication, advocacy and external specialist technical costs to assist with many key areas of the Group's activities, alongside £0.05m of non-budgeted increases in distribution and shipping costs owing to short-term supply disruption. Several patent applications filed to protect IP as many new products reach commercialisation. Post period-end highlights. d2p - US FDA further approval for antibacterial plastic technology with greater loading and wider use in bread films. d2p - Canadian Health approval for antibacterial bread films. 4 significant collaboration agreements with Meditech. China distribution agreement for d2w and d2p. Manufacturing and royalty agreement for Nitrile gloves. Marketing agreement for Symphony to sell d2p Nitrile gloves in specified markets. Corporate agreement to acquire not less than 2.5% and not more than 20% of Symphony's total share capital. Trellus Health 64.5p £104m (TRLS.L) Trellus Health plc (AIM: TRLS), which is commercialising a scientifically validated, resilience-based, connected health solution for chronic condition management, announces it has established a management services organization agreement with Connected Health Medicine PC, a state licensed Professional Corporation that will provide multidisciplinary patient care services via telehealth. Trellus Health will provide technology and administrative services to Connected Health. The partnership with Trellus Health provides Connected Health with the technology necessary to offer digitally enabled chronic care management services through its licensed multidisciplinary care team, utilizing the patent-pending GRITTTM resilience assessment and methodology via Trellus Health's telehealth platform, TrellusElevate™. This agreement represents the first in a series of partnerships that will enable Trellus Health's proprietary technology platform and resilience-building methodology to be scaled geographically for licensed clinical care coordination and delivery across the United States. ValiRx 21.5p £14m (VAL.L) The life science company focusing on early-stage cancer therapeutics and women's health, has entered an Evaluation Agreement with a leading London university to investigate a novel technology designed to treat breast cancer. Under the agreement, the Company will carry out a defined series of preclinical tests on the drug candidate molecule over the next nine months to validate the technology and determine suitability for commercialisation. This preclinical evaluation, the cost of which will be borne by ValiRx up to £75k, will investigate the action of the molecule against Triple Negative Breast Cancer and other indications. At the conclusion of the evaluation period the Company has an option to license the technology on pre-agreed terms.
AFC AAU CRCL GLR KIBO EMVC PCIP SYM TRLS VAL
AFC Energy announced that it has entered a hydrogen fuel cell supply and collaboration agreement with partner, Urban-Air Port Limited (“Urban-Air”), a leading UK developer of ground infrastructure for the growing demand in autonomous airborne drones and electric take-off and landing passenger vehicles.
AFC Energy’s statements and recent integration work with ABB highlight growing interest from customers which bodes well for orders in the months ahead. The forthcoming S-series of products will expand the Group’s portfolio and should deliver much high power densities and improved economics. The deployment of fuel cell technology is increasingly recognised by Governments and industry as a key tool in reducing global greenhouse gas emissions, which we expect will drive momentum for deployment in a number of sectors. Our valuation is 188p but we see enormous potential in Maritime and Data Centres which is not yet factored in.
AFC Energy has this morning announced the milestone of sending its first fuel cell system to ABB, a world leader in electrification and digitalisation, and a key strategic partner of AFC Energy, pursuant to a partnership agreement entered into in December 2020. As a reminder, ABB became a shareholder in AFC Energy on 16 April 2021 via a subscription agreement in the context of a highly successful equity fundraise. The strategic partnership agreement between ABB and AFC Energy is premised on the objective of designing and selling high power EV charging systems for grid constrained locations through ABB's global market channels.
Based on the commentary related to AFC Energy's interim results, we anticipate further near-term momentum growth from the company. Most importantly, AFC Energy has indicated that it has a current book of 50 qualified fuel cell deployment enquiries – the majority of which represent multiple order potential. From that book the company anticipates announcing further system deployments in the second half of the year. We highlight that AFC Energy's interim results for the six months ended 30 April 2021 indicate that the company is in a position of financial strength enabling it to capture the opportunities related to its rapidly growing markets. All in all, premised on the unique capability of AFC Energy's fuel cell systems to utilise relatively impure hydrogen, inclusive of hydrogen derived from energy-dense liquid ammonia, we are extremely encouraged that AFC Energy is positioned better than ever to capture the potential of the rapidly growing hydrogen sector. The hydrogen market is widely acknowledged to be one of the most exciting markets globally in terms of the pace of anticipated exponential growth and the expected longevity of that growth; in that context, we believe AFC Energy is particularly well positioned to create tremendous shareholder value by capitalising on its strengths in the hydrogen market. With 2021 being the year of COP26, we note that governments globally and the International Energy Agency are increasingly recognising hydrogen as a critical enabler of the energy transition, resulting in strong policy support for growth of the hydrogen market. We believe that AFC Energy's financial results, combined with the core advantages of its fuel cell technology, indicate that it is at the vanguard of the commercial scale up of the hydrogen sector.
AFC Energy hosted a virtual Capital Markets Event yesterday attended by over 750 participants. The company re-emphasised its key technological advantage, namely, AFC Energy's technology can successfully run on a range of cheaper hydrogen sources including hydrogen ‘cracked' from green ammonia. Based on AFC Energy's market analysis, it stated that on an energy equivalent basis ammonia costs less than one quarter of the cost of hydrogen. Ammonia is a liquid under normal conditions, making it a dense and safe form of energy, with an established distribution network. As a result, the logistical advantages of ammonia are expected to be a determinant advantage. AFC Energy's fuel cells are, to our knowledge, the only commercially proven fuel cells globally that are capable of supporting trace gases of ammonia.
AFC Energy 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.
AFC Energy announced the appointment of Dr. David B. Harvey as its new Chief Technology Officer, effective from May 2021. Dr. Harvey is globally recognised as an expert in the field of fuel cells and electrochemical systems. Notably, he spent 12 years as Group Leader and Senior Research Engineer at Ballard Power Systems and Head of Fuel Cell Development at Fuel Cell Powertrain GmbH. Dr. Harvey also led performance and durability projects relating to fuel cells for the US Department of Energy.
AFC Energy announced a fundraising of £36m consisting of an oversubscribed placing with institutional shareholders amounting to £31.2m and a £4.8m strategic investment from ABB (£3.25m) and Dutco (£1.50m). The equity capital raise was priced at 64.5p representing a modest discount of approximately 5% relative to the prior day's closing price. The robust support shown by the capital raise suggests, in our opinion, that the strengths of AFC Energy's technology, its commercial positioning and the growth opportunity afforded by each of AFC Energy's addressable markets have been recognised by the institutional market. The expansion of AFC Energy's strategic partnership with ABB, now a shareholder, into the data centre market is potentially transformative. We outline in this note the potential implications of that development, while deferring the implications of that development on our fair value estimate until we have undertaken more analysis. We place our fair value estimate under review for an upgrade.
AFC has announced a £36m equity issue with £3.3m from ABB, £1.5m from Dutco and £31.2m from institutional investors. It has also announced that its partnership with ABB will develop a new product offering to serve the data centre market. While the extra share count marginally dilutes our existing valuation (from 191p to 184p) we expect this to be more than offset by the profit opportunity in data centres and in the marine/rail markets that are being explored in conjunction with Ricardo. We will quantify these issues in a future report, but we are confident that the addressable markets for AFC are vast and it has a good chance of succeeding in them.
Last Thursday's intra-day announcement from AFC Energy that it has signed an MoU with the owner and operator of one of the world's largest diesel generator rental fleets is another milestone on the road to a hydrogen powered future fuelled by AFC Energy's technology.
AFC announced another exciting strategic partnership this time with Altaaqa operating one of the world’s largest rental fleets of mobile diesel modules with 2GW of capacity. We believe the growth potential from this could be material, and further underlines the exciting future ahead. We re-iterate our positive stance and remain comfortable with our 191p target valuation.
We believe that AFC Energy's partnership with ABB, as announced 16 December 2020, aligns the company for extraordinary and long-term growth in the global EV charging infrastructure market. We also believe that AFC Energy's partnership with the Mace Group, as announced 16 March 2021, will provide further market penetration into the temporary power market. That agreement, following the collaboration agreement with ACCIONA, as announced 1 June 2020, provides further validation of the commercial opportunities coming from growing pressures for industry to move away from the diesel generator - supporting decarbonisation and reducing urban air pollution. Based on our analysis of the statements from the International Energy Agency, we see hydrogen as an essential enabler of the success of the energy transition (not an option). We raise our fair value estimate from 75p to 159p, bearing all of this in mind. We note that AFC Energy is primed for further potential upside.
BP announced yesterday that it intends to progress a proposed hydrogen project in Teesside that would be the largest in the UK, producing up to 1GW of “blue” hydrogen – 20% of the UK's hydrogen target – by 2030.
AFC Energy announced that it has signed a strategic partnership with the Mace Group (“Mace”), a leading international construction and consultancy business based in the UK. Pursuant to the agreement, AFC Energy and Mace will develop long-term UK and international deployment strategies that support a transition from polluting diesel generators to zero emission hydrogen generators for construction sites. Mace has committed in its “2026 Business Strategy” to remove diesel generators entirely on its construction sites by 2026.
AFC has announced another exciting strategic partnership this time with Mace, a global player in the construction sector. As previously flagged, the construction industry needs alternatives to the diesel generator, and we see this partnership as a clear reference point for the industry. Following share price weakness of late, we believe the risk/reward profile as positive.
AFC Energy's Final Results for the year ended 31 October 2020 indicate the company is in a position of strength and at inflection point of sales growth. Results were better than we had forecast with a reported loss of £4.2M (WHIe £4.5M) and cash flow from operations of £4.3M (WHIe £4.2M). Most importantly, the company ended the period with a stronger cash balance than we had expected of £31.6M (WHIe £29.9M) reflecting the capital light strategy the company is applying. The year-end confirmed order book of £1.1M indicates that AFC Energy, after decades of investment, is past the inflection point that is translating its globally unique technology into a highly-compelling, long-term commercial growth opportunity.
Final results from AFC are very close to our projections, with net cash slightly ahead of our expectations. There is no new news in this announcement, and we marginally edge up the losses in 2021E and 2022E due to increased activity levels as the Group looks to capitalise on the vast opportunities available. We remain excited about the long-term investment thesis we set out recently and maintain our target valuation of 191.5p per share. As we have previously highlighted, our valuation excludes what we consider to be significant growth opportunities highlighted in the note.
AFC Energy has this morning announced (RNS Reach) that it has launched its Anion Exchange Membrane (“AEM”) Fuel Cell test facility at the Company's Surrey headquarters. This facility will test and optimise AFC Energy's high energy-density fuel cell technology, HydroX-Cell(S)™, that is currently in development. The design of the new dedicated AEM fuel cell facility was completed in the second half of 2020 with full fit out now complete in advance of full operation.
AFC Energy announced today (through an RNS REACH) the appointment of Dr Michael Rendall as its new Chief Engineer and Product Officer, effective from 1st March 2021. According to the statement, Dr Rendall joins AFC Energy from Dyson Technology Ltd where he was Head of Engineering and Industrialisation for Dyson's Energy Storage team where he was leading on several battery and energy storage programmes. Dr Rendall has specialist experience in the utilisation of ammonia as a fuel and in ammonia cracking. This will support AFC Energy to further leverage one of its fuel cells' core strengths, the ability to use ammonia as fuel, as the company explores the use of fuel cells in stationary, maritime and transport related applications. Dr Rendall has leadership experience in progressing technologies and developing strategies that scale up and commercialise marketable systems. This experience will support AFC Energy's corporate aspirations for the fast-tracking of high-density alkaline fuel cell system development and deployment over the next couple of years.
We update our valuation following our initiation note in September. Since then there has been multiple positive developments in terms of new strategic collaborations with world leading organisations as well as investment to ensure capacity can be built up to satisfy demand. Our revised target valuation of 191p reflects elements of the ABB relationship in a number of major markets, albeit the longer-term opportunity could be much bigger than this. Indeed, we have not included all AFC’s growth opportunities in this valuation. Recent profit taking gives an opportunity to re-visit the long-term investment thesis. The next scheduled news flow is FY results in early March.
AFC Energy announced today (through an RNS REACH) that it is unveiling a new, zero emission power generator to be featured in the inaugural Extreme E electric SUV racing series that begins in April 2021. According to the company, following six months of collaborative engineering and design, AFC Energy's hydrogen power generator has been successfully commissioned, on schedule, and is to be handed over to Extreme E this week. The fuel cell system has been configured to operate across desert, arctic and high-altitude locations. It will power all of the Championship's ODYSSEY 21 electric SUVs in its inaugural season of racing. The first Extreme E race, the Desert X-Prix, is scheduled for the weekend of the 3rd and 4th of April; it will be held in Saudi Arabia.
AFC Energy (AFC) – Corporate – Strategic Partnership with Ricardo
AFC Energy announced the signing of a strategic engineering collaboration with Ricardo, an internationally renowned global engineering consultancy with a strong specialisation in decarbonised transportation and clean power generation solutions. The collaboration agreement will have a primary focus on the joint identification and development of new and innovative solutions through the adoption of AFC Energy's alkaline fuel cell technology. Key markets of focus include marine (shipping and ports), rail and innovative stationary power generation.
AFC Energy has announced a strategic engineering collaboration with Ricardo (RCDO). It will focus on global opportunities for AFC’s fuel cell technology in marine, rail and stationary power sectors. The agreement should open sizeable new markets for AFC which are not yet reflected in our long-term projections or the market capitalisation. Our valuation is under review for a significant upgrade given recent positive developments.
AFC Energy has signed a strategic partnership with ABB, a global leader in electrification, digitalisation and e-mobility technologies. Pursuant to the strategic partnership announced today, ABB and AFC Energy will launch a bespoke high-power EV charging product for distribution through ABB's market channels from the second half of 2021. ABB entered the EV charging market in 2010 and to date has sold more than 17,000 fast chargers across 80 countries. The strategic partnership aims to leverage AFC Energy's zero emission, high efficiency fuel cell technology alongside ABB's energy storage and market-leading DC power EV charge point technology. Each company is to invest through a commercialisation and marketing agreement in addition to a joint product development agreement to showcase the supply of secure, reliable and flexible on-site power generation in ultra-rapid EV charging systems.
AFC has announced a strategic partnership with ABB to bring to market a fully integrated, high power, zero emission EV charging system for ultra-rapid charging of vehicles. This is a non exclusive agreement on both sides, but we believe ABB are already looking to extend the reach of this relationship including data centres and potential utility scale power systems. We will be looking to review our forecasts and valuation in due course, but see clear upside potential vs. our initial 68p per share valuation in another significant and exciting development for the Group this morning.
We are updating our fair value estimate for AFC Energy to reflect i) the progress made by the company and ii) a greatly improved outlook for the hydrogen sector. As such, we are increasing our fair value estimate to 74.6p from 39p (prior to the company's £32M capital raise).
AFC Energy announced that it has secured a long term lease over a 30,000 square foot (2,800 square meters) hanger and ancillary facilities at its Surrey headquarters at Dunsfold Park to serve as the company's first large scale H-Power™ assembly and commissioning facility.
AFC has announced it has secured a long term lease over new premises at its Surrey HQ, which will serve as the Group’s large scale H-Power assembly and commissioning facility. We view this as a positive step forward in AFC scaling up its production to meet strong levels of demand in the current environment. We remain very comfortable with our investment thesis and target valuation of 68p per share outlined in our initiation note in September.
AFC Energy announced that it has signed a binding agreement with BK Gulf to support the immediate scale up of manufacturing capacity for delivery of its proprietary H-Power™ fuel cell.
AFC has announced an exciting contract with BK Gulf, that should ultimately significantly reduce the cost of delivering its H-Power system. The capacity for growth is significant, and should position AFC well to deliver on its current commercial pipeline during 2021 and beyond. We believe our forecasts are well underpinned at this juncture, and remain very comfortable with the investment thesis we set out in our initiation note from September.
AFC has released a year end update, which summarises the key activities in what has been a successful year for the Group. The confirmation of commercial contracts to FY21e in excess of £1m already committed against our forecasts of £1.5m suggesting a likelihood these forecasts will be exceeded next year. We remain comfortable with our investment thesis and can see a clear near-term intrinsic value of 68p based on UK EV Charging and Distributed Power alone.
We initiate coverage on AFC Energy and see this as a significant long-term growth opportunity. We have only focused on the UK potential in EV Charging and Distributed Power in this note but believe the application will be far wider both in geography and application. Following a transformational 2019, we can see a clear near-term intrinsic value of 68p based on UK EV Charging and Distributed Power alone.
AFC Energy has this morning announced the sale of a bespoke 100kW H-Power™ fuel cell to Forschungszentrum Jülich for deployment at its Living Lab Energy Campus in Germany, one of Europe's best known interdisciplinary research institutions. The Living Lab Energy Campus being developed by Jülich is a collaborative project involving leading German and global partners. The intention of the project is to provide a blue print for sustainable, decentralised and integrated smart infrastructure with an emphasis on the most globally advanced renewable and hydrogen technologies. Specifically, the living lab being constructed by Jülich will showcase the potential of microgrids and smart cities, which are seen as a cornerstone of the transition away from large, polluting and centralised energy generation models. Having reviewed the best available hydrogen technologies, Jülich selected AFC Energy for the provision of a stationary fuel cell due to AFC Energy's alkaline fuel cells having a higher tolerance to lower grade hydrogen, which is substantially less costly. This was the single most important factor behind Jülich's selection of AFC Energy.
In terms of the reported numbers, the company reported an operating loss for the six months ended 30 April 2020 of £2.1M (WHIe -£2.5M) reflecting better cost control that we had forecast. The company reported a period-end cash balance of £2.5M, which has since been increased via an oversubscribed equity placing of £31.6M announced 1 July 2020.
AFC Energy to Charge Inaugural Extreme E Championship Race Vehicles AFC Energy announced that it is collaborating with Extreme E to supply zero emission, hydrogen fuelled, off-grid power to Extreme E's inaugural electric SUV racing series commencing in early 2021. We believe the development is a high-profile endorsement of AFC Energy's technology. AFC Energy has not disclosed the amount of revenue they expect to generate through this one-year contract. We expect AFC Energy will benefit materially from the publicity associated with this global and high-profile Championship. We expect the shares will trade positively on this news.
AFC Energy announced an equity capital raise of £31.6m at a price of 16p resulting in the issuance of 197.5m shares. The newly issued shares will represent 29.3% of the company's enlarged share capital. The use of funds, an operational update, an adjustment to our fair value estimate and our view on the outlook for the company for the remainder of the year are detailed in our full report.
Entering the temporary power market AFC Energy announced earlier this month that it had entered into a collaboration agreement with ACCIONA (BME:ANA, Market Cap €4.9bn) to field trial its H-Power™ fuel cell system with the objective of decarbonising construction sites. The announcement, for the first time, formalised AFC Energy's intention to enter the temporary power generator market, which is presently dominated by diesel gensets. Given the scale and track record of ACCIONA, we view the partnership as a strong endorsement of the potential for AFC Energy's technology. Having assessed the prospective scale of this new market for AFC, our risk-adjusted estimate of fair value for the shares now stands at 39p (previously 27p).
AFC Energy and ACCIONA have entered a collaboration agreement to field trial AFC Energy's H-Power fuel cell system with the objective of decarbonising construction sites. Through the announcement, AFC Energy has also formalised, for the first time, its intention to enter the market that is currently dominated by diesel gensets with a clean alternative. We place our estimate of fair value for the shares under review (previously 27p) pending our full assessment of the potentially positive implications of this morning's announcement.
AFC Energy has provided a critical update relating to its new HydroX-Cell(S) fuel cell platform, which is a high-power-density solid electrolyte fuel cell. We believe the successful progress announced today in respect of the HydroX-Cell(S) product is positive and price material. We continue to see fair value for the company at 27p, but recognise this is based solely on the potential of the company's electric vehicle charging system and does not include value for the potential of the HydroX-Cell(S), which is making considerable strides towards commercialisation based on today's announcement.
AFC Energy indicated that it is making plans for a return to the office of many staff at the end of May, subject to Government guidelines and following the conduct of requisite workplace risk assessments.
AFC Energy is a global leader in the fuel cell sector. It has a proven fuel cell technology which it is commercialising through its H-Power™ product, an off-grid electric vehicle charging system which is run on hydrogen and produces no emissions. The company's core fuel cell technology is a liquid alkaline fuel cell called HydroX-Cell(L)™. The company is also developing a solid alkaline fuel cell called HydroX-Cell(S)™ , the critical component of which is a is a solid electrolyte which upon validation will be marketed under the AlkaMem™ trademark. We expect the AlkaMem™ product to have multiple electro-chemical applications outside of fuel cells. The purpose of this note is to compare AFC Energy's products, markets and business strategy against its listed peers Ceres Power and ITM Power. The note also assesses the state and outlook of the hydrogen market in addition to the proton exchange membrane market, which is relevant for AFC Energy's AlkaMem™ product. As a reminder, we believe AFC Energy has a fair value of 27p/sh.
AFC Energy announced that it is raising £1.4M via a subscription of 14,000,000 shares at 10 pence (a discount of 18.7% relative to the closing price on 19 March 2020, the day prior to agreement of the subscription). The newly issued shares will represent 2.9% of the enlarged share capital.
Final Results Our broad take-away from AFC Energy's final results is that the company is operating with incredible capital efficiency reflecting i) AFC Energy's strategy to partner with key equipment manufacturers vs. making heavy capital investments in manufacturing ii) capital discipline in respect of administrative expenses and iii) R&D tax credits. We expect the company to generate first sales in 2020 and therefore we have focused principally on the company's cash flows with key details provided below. Unrelated to the company's financial results, we are using the opportunity to normalise the discount rate applied in our long-term DCF model from the punitive rate of 12% to 10%. We believe this is appropriate because we see i) material investor interest in the sector evidenced by strong relative stock market performances of AFC Energy and Ceres Power and ii) increased media and investor attention focusing on the need for off-grid charging of electric vehicles in order to meet government targets due to limitations of electrical distribution networks. Normalising the discount rate used in our DCF model results in a new fair value estimate of 27p (from our prior estimate of 21p). On the following page we have provided a reminder of the other assumptions incorporated into our valuation.
AFC Energy has raised £1M by way of a subscription of 5,882,353 shares at 17 pence. The company also indicated that following the successful launch of AFC Enegy's H-Power™ electric vehicle charger in December 2019, the company has commenced conversations with several prospective customers, including fleet operators, Councils and retailers. The discussions have confirmed interest in the company's technology as applied to charging electric vehicles off-grid using hydrogen (or ammonia) as feedstock. The discussions have ratified AFC's strategy and confirmed interest to introduce 160kW and 480kW units as early as possible.
AFC Energy (AFC) – Corporate – Product Launch and Participation at UK Motor Show | European Metals Holdings (EMH) – Corporate – Strategic Partnership with CEZ
AFC Energy plc European Metals Holdings Ltd
AFC Energy (AFC) – Corporate – AFC Energy Raises £0.52m
AFC Energy (AFC) – Corporate – Initiation of Coverage and Product Testing Update
AFC Energy (AFC) – Corporate – Pre-Close Operational Update
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AFC IVO DDDD VRS ABZA SAT 0NR1 2FX
end and power export was a hugely challenging target. The year-end ‘11th’ milestone was set more as a means of accelerating the program rather than a date of any real relevance with respect to commercialisation, which it has very successfully done. It is impressive AFC came this close. Anticipated January full commissioning and completion of Power-Up will constitute a 17 month acceleration of the platform roll-out achieved in just over a year. Calendar year 2015 has been an outstanding year of progress for AFC in both the technological advancement and commercial roll-out of its state-of-the-art
The Dutco Group is a leading Dubai-based investment and project development company with interests in construction, oil and gas, freight, logistics and hospitality. It has a successful model of long-term strategic investment, often with joint venture partners including Balfour Beatty and McConnell Dowell. The history and growth of the Dutco Group is inextricably interwoven with that of Dubai itself, and the Group has successfully delivered a number of the region’s largest infrastructure projects. Today’s announcement from AFC that it has signed Heads of Agreement with Dutco to develop a business plan for the large-scale deployment of AFC’s platform across several Gulf states including Saudi Arabia is excellent news.
AFC CEO Adam Bond continues to make progress on his stated intentions for his impressive first year at the helm. Securing a signed manufacturing deal with a global mass manufacturing partner was one of those stated first year goals, and today’s news demonstrates great progress in achieving it. The manufacturing deal is a key component in AFC achieving its wider target of having 1GW of plant operational or in build by 2020, and we look forward to this agreement evolving into a full commercial contract over the coming weeks and months.
AFC Energy remains on-track to execute its accelerated technology commercialisation program. This morning’s announcement of 40kW being produced by a full, 8 cartridge tier of the KORE system (see Exhibit 1 below) completes milestone 10 of the 11 milestone program laid out by the company on December the 8th 2014. The program culminates in a 0.24MW KORE system operating at full capacity delivering power into the German grid by the end of 2015 – 18 months ahead of AFC’s previous roll-out time frame. Today’s announcement is an outstanding achievement by the company, and a major proof point for the technology and the AFC team in the successful execution of its accelerated full system roll-out time-frame.
AFC Energy remains on-track to execute its accelerated technology commercialisation program. This morning’s announcement of power being exported into the German Grid is the first component of milestone 10 of the 11 milestone program laid out by the company on December the 8th last year. It culminates in a full 0.24MW KORE system delivering power into the German grid by the end of 2015 – 18 months ahead of AFC’s previous roll-out time frame. Today’s announcement was the commissioning of power electronics with Siemens AG, and involved 6-7.5KW delivering electricity into the grid for circa one hour. To complete milestone 10, AFC is required to export 40kW from one 8 cartridge layer of the 3 layered KORE system. The cartridges have already arrived on-site at Stade, and we look for full milestone 10 execution to be announced on schedule in the coming weeks.
Following the flurry of positive technological and commercial announcements earlier in the year that came after the appointment of Adam Bond in December 2014, there has been a relative lull in the news flow and the market has reacted negatively to it. Today’s announcement shows that the reaction is unjustified, and that the company remains very much on track to deliver all its stated milestones both technologically with successful Power-Up execution and commercially by the delivery of a real 1+GW of contracted capacity either operating or being built by 2020.
The key event with respect to AFC being able to deliver its accelerated timeline for a commercially operating 240kW KORE system delivering power into the German grid by the end of this calendar year. Achievement of this goal will be a seminal event in the company’s evolution and will accelerate the roll out of AFC’s low-cost alkaline platform into a growing pipeline of mass market opportunities.
A key event with respect to AFC being able to deliver its accelerated timeline for a commercially operating 240kW KORE system delivering power into the German grid by the end of this calendar year. Achievement of this goal will be a seminal event in the company’s evolution.
H115 has been a watershed. After appointing CEO Adam Bond on Dec 1st, AFC put out an accelerated timeline on Dec 8th, with 11 technological milestones culminating in commercial deployment of its market-entry 240kW ‘KORE’ system as part of the EU joint-funded ‘Power Up’ project by the end of CY15; 18 months ahead of schedule. AFC is on track to deliver this. Since then commercial deals in Korea, Thailand and Dubai have been announced for 50MW, 10MW and 300MW installations respectively. All three involved signing an initial timing and resource commitment by relevant, regional, high-profile counterparties. This is an impressive start by Bond toward building AFC’s stated 1GW pipeline target. We look for the evolution of these projects into full contracts to drive growth in H215. The key H1 highlight was a sub £1m cash burn due to monthly repayment terms of the Lanstead equity swap being linked to AFC’s sp. The deal was struck at a 13.3p par value, with the price having been as high as 51p in the period.
