AFC Energy is a fuel cell development company that operates out of Surrey. Currently their main objective is developing a hydrogen fuel cell, that is ready for mass-market manufacturing and commercial use. AFC’s long-term strategy is to manage every stage of the commercial process, to “install, own, operate and maintain” it’s alkaline fuel cells. AFC is targeting a well-known growing industry as the world grasps at opportunities to replace fossil fuels. Legislation such as the Paris Climate Agreement only further enforces this, and provides an opportunity for this company. Their commercial strategy that manages and provides revenue from every step of the fuel cells commercial life, will also put them in good stead to remain profitable, once they go to market.
So really, everything sounds peachy, right? A growing market, with the right product, and a solid strategy, what could go wrong? Well, the company hasn’t made a profit in the last 5 years, normally losing around £5million before tax. Their total assets are also on a slow decline, from £10million in 2013 down to £6.2million this year. This slow burning depreciation of assets puts pressure on their product launch, as they will need to begin taking and fulfilling orders before the candle burns out.
There are however a couple of other looming issues which cannot be ignored. The large part of AFCs funding comes from a joint European venture called Power Up. There is a worry that with the impending reality of Brexit, this could be under threat. However, as the coordinators of project Power Up, they have signed contracts that ensure the must provide Megawatts of energy post commercialisation, just as the European Union is on track to hit its target for 20% renewable energy production by 2020. A research and supply deal should keep the agreement golden, post Brexit. The other issue is despite AFC developing this technology for many years, they still haven’t gone commercial. A deadline is still to be set, and this date could be years down the line.
Overall I believe this share is a potential growth stock, which currently sits at a price of 11p. The share has regularly bounced to 40p a share and further, in 2010, 2012 and 2015, which shows us the share has room to grow. The risk comes from the security of their funding if their product is not a success on the market – if it ever makes it. If this was the case, their overheads would quickly drive them into the ground. There are also no contract details currently published for the future commercial contracts. Therefore, I couldn’t recommend having AFC as part of your portfolio. I myself have invested a small amount of money into AFC, just in case they are able to jump through all the hoops that stand in its way. However, it still has a long way to go and shouldn’t be considered a safe long term growth investment. More like a rollercoaster without any safety rails, it could be great, or it could get you killed.