Over the last 12 months, the AFC Energy (LSE:AFC) share price has exploded by more than 350% following the announcement of multiple new key partnerships. But what does this company do? And should I be adding it to my growth portfolio? Let’s take a look.
The rising AFC share price
AFC is a leading provider of alkaline fuel cells. These proprietary hydrogen-based power systems are modular by design and can be easily adapted for various use cases, such as hydrogen-powered vehicles. Its technology has been in development for many years, during which no revenue was generated. Therefore to keep the lights on, the firm has been dependent on external financing. But that may be about change.
In July last year, AFC successfully raised £31.6m through a share issue. This appears to have provided the firm with enough capital to see it through the near future. At the same time, it also strengthened its balance sheet. Consequently, AFC actually terminated its £4m financing facility with Thalion Global in November 2020.
A week later, it signed a new contract with BK Gulf to expand its manufacturing capacity. And in the following month, it announced the formation of a strategic partnership with ABB. The two companies will leverage each other’s technologies to develop and launch a series of high-powered electric vehicle re-charging stations.
Combining this positive series of events with the fact that AFC signed its first commercial order last year sent the share price up from 18.5p to over 75.6p over the course of 2020.
Taking a step back
Needless to say, for a young hydrogen business, these new partnerships and commercial orders are excellent news. However, due to the sudden surge in share price, AFC now has a market capitalisation of around £470m. By comparison, its new commercial order will only generate £1.1m of revenue. And so the stock looks exceptionally expensive in my eyes.
From what I can tell, the AFC share price is being propped up based on investor expectations surrounding the ABB partnership. After all, an estimated 1.2bn electric vehicles can make use of the charging station technology once it is ready. This undoubtedly presents a fantastic opportunity for the company. However, with no clear guidance on this project’s tangible value, nor any indication as to when it will be ready for commercial deployment, placing a value on this firm is quite tricky.
The bottom line
As promising as the technology is, I’m personally not interested in adding AFC to my portfolio today. There are simply too many unknowns at this point in time, I feel.
Having said that, I will be watching closely the progress made with its ABB partnership, as well as monitoring whether it can continue to attract new sales of its other products.
