AFC Energy PLC’s (LON:AFC) aim this year is to commercialise its breakthrough industrial fuel cell technology.
“Progress in developing and monetising partnerships continues unabated in our target markets," said chief executive Adam Bond in March.
Broker Cantor Fitzgerald believes it has a chance to meet its goal.
“AFC has transformed itself into a more realistic investment proposition in the past year.
“The product has proved that it can supply power to the grid, and we see commercial traction building," said the broker in an initiation note.
Hydrogen the driver
AFC specialises in an alkaline fuel cells that use hydrogen to generate electricity.
Its KORE system uses three components, an electrode, cartridge and balance of plant, to make one cell, which are then stacked into a unit of 101 cells to make a cartridge, which can be replaced like a battery when degradation starts to occur.
Last year (2015) it successfully tested the 101 fuel stacks, completed most of the milestones of the Power-Up Project and began signing up partners.
It now has a 50 megawatt (Mw) project development agreement with Samyoung Corp and Chang Shin Chemicals in South Korea, a 10 Mw heads of agreement with Bangkok Industrial Gas in Thailand and a 300 Mw outline deal with the Dubai Carbon Centre of Excellence.
AFC’s systems runs on hydrogen and it reckons that the excess of the gas generated by the chlorine and caustic soda industry could support over 3,000 Mw of capacity, providing nearly 20% of the industry's power needs.
The company’s own target is to have 1Gw (1,000 Mw) of capacity installed by 2020 and recently reaffirmed its confidence in achieving that objective.
Funding and sales
Cantor says the scope of the targets for 2016 may have disappointed some but it sees them as sensible and, if met, will create positive newsflow across the coming year.
Even so, AFC will continue to burn cash for a few years while it remains in development mode according to Cantor.
The broker estimates the current burn rate is around £7mln per year and some additional funding will be required in the future.
Results in 2016 are also likely to reflect the cost of the development work says the broker but from then on sales should start to pick up leading to losses starting to fall by 2018 and a move into profitability in 2019.
Cantor sees revenues of £4.2mln in 2017 rising to just under £14mln in 2018.
Broker view
Cantor initiated coverage with a ‘buy’ recommendation and a target price of 77p.