AFC Energy PLC (AIM:AFC, OTC:AFGYF) comes first in a list of top stocks in the smaller cap market compiled by analysts at stockbroker Peel Hunt, after the company initiated the commercialisation of its hydrogen-powered generators.
Few hydrogen power generator producers have commercialised at scale, largely due to the nascency of the market and historically high industrial costs.
The stockbroker welcomed the company's recent tie-up with tool hire company Speedy Hire, and said an exclusive distribution agreement it signed with The Machinery Group (TAMGO), which is part of Saudi group Zahid Group, in September, could lead to "further material orders" in the near term.
They estimate that the company’s stock could be worth up to more than six times its current value, based on its share price, today.
Analysts Nick Walker and John Gilbert said the Speedy Hydrogen Solutions joint venture that the company formed with Speedy Hire in November will lead to a ‘material number of generators being deployed around the UK’.
They also said that a demonstration of the world’s largest compact ammonia cracker, together with the progress the company has made in developing smaller and cheaper second-generation technology, "have sparked material commercial interest."
“2023 was a significant year for AFC Energy in preparing products for volume manufacturing and creating tangible routes to market,” the analysts said in a research note on Thursday.
“In 2024, we expect rapid expansion of product deployment, new commercial relationships and growing orders.”
The latest tie-up with Speedy Hire includes an initial order of up to £4.7 million for the first year of the contract.
Analysts anticipate that more than 20 generators will be deployed through the joint venture over this period, a figure which is expected to rise ‘materially’ over the first three years of the exclusive partnership to service the UK market.
Peel Hunt analysts said the firm’s smaller-cap picks had a ‘better year’ in 2023 overall, with the increase in the weighted average return of those companies over that period estimated to be as high as 18%, despite last year being a rocky period for stocks.
AFC Energy was included among a list of 27 smaller-cap companies picked by Peel hunt analysts, compiled in alphabetical order, that have a market capitalisation of up to £300 million and ‘attractive growth, recovery or financial fundamental characteristics’.
Analysts at the brokerage rated AFC Energy positively as a ‘buy’, estimating its shares would represent fair value at 125p per share, more than six times its 18.38p share price today.