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AFC Energy (LON:AFC) is one of those stocks that we would love to love; after all, the company is developing zero emission technologies and all, but after more than ten years of developing, testing and fine-tunning different types of fuel cells, something more than testing agreements and trial runs has to materialize before the share becomes a convincing buy.

Success has been just around the corner for the company ever since it signed its first deal with Centrica in 2010. That corner has been coming closer and closer since then but still remains somewhat elusive.

AFC Energy’s latest two releases are a case in point. In May the company said there has been “strong interest” in the company’s HydroX- Cell technology which is fuelled by hydrogen, and the technology remains on target for initial release in 2022.

“I remain confident that we are now on the cusp of great success,” said the chief executive Adam Bond. In 2015. What happened?


The second is the company’s announcement that it will work with Spanish construction company Acciona to field trial its H-Power fuel cell for the construction market. This is all dandy, but if apart from news about its many advancements in technology, letters of intent and agreements to test it, AFC Energy showed an actual signed commercial deal, it would make a more convincing case that it can actually financially stand on its own two feet.

AFC Energy’s core focus is on fuel cells, one of renewable energy technologies that is notoriously difficult to get right and typically takes longer than investors would expect. Look at some of AFC’s peers and competitors and you will see that for many, successful commercialisation has been elusive for years.

One of the problems is that the fuel cells which can be used as an off-grid power generator – of varying sizes – run off hydrogen, which is difficult to cost-effectively transport from point of origin to where it is needed. For years there was talk in the industry that there would be a hydrogen distribution network dotted around the country the same way as petrol stations are, but that has not materialised. Without that network the cost of transporting hydrogen for each individual project that needs fuel cells stacks up.

AFC Energy: what do the financials look like?

The company tends to burn through between £4.8 and £5.6 million a year in administrative expenses, and has been ending financial years with losses in the range of between £4.1 and £5.6 million per year.

In the early parts of the last decade when the bulk of the focus was on R&D, the financing mostly came through EU grants. Now that the EU is….gone, that finance option is also no longer available. Since the decision to Brexit the financing has mainly come from share placements and some direct investment, and eventually, from loan facilities.

For many years the company’s main focus has been on stackable fuel cells but a few years ago the company also started developing charging stations for electric vehicles and has created a commercially viable product at the end of last year but has not started distributing it yet.

While the idea is good and there is visible evidence that electric car sales are rising much faster than any other types of vehicles, COVID has thrown a spanner in the works on several levels. Firstly, car sales are down and will remain lower not only in the UK but also in the rest of Europe. Secondly, government support for electric vehicles is likely to evaporate this year in the face of more pressing issues.

There is the government decision to phase out petrol and diesel cars by 2035 but once all the furloughs and support for various sized businesses is paid out this year there will be no money left in the state coffers and the government’s focus will turn to raising money rather than distributing it.

This means that AFC will have to start standing on its own financial legs sooner rather than later. AFC, are we there yet?

Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Vanya Dragomanovic

Vanya Dragomanovic

Vanya is an award-winning financial journalist who has worked in both television and newswires. She spent over 10 years at Dow Jones covering commodity markets, including metals, coffee, cocoa and oil. She also reported from the floor of the London Metals Exchange, and appeared on CNBC to discuss international metals markets. Since then she has written for several leading financial publications, including serving as commodities editor for FTSE Global Markets.

Vanya continues to cover international commodities markets globally, specialising in particular on metals and alternative energy. She is also the author of a book on CFD trading.

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