WH Ireland (LON:WHI) Analyst Brendan Long caught up with DirectorsTalk to discuss AFC Energy plc (LON:AFC) final results.
Q1: AFC Energy have recently published their final results, what were the key points you think investors should be aware of?
A1: Our broad take-away from the company’s final results is that the company is operating with incredible capital efficiency reflecting i) AFC Energy’s strategy to partner with key equipment manufacturers vs. making heavy capital investments in manufacturing ii) capital discipline in respect of administrative expenses and iii) R&D tax credits. The cash burn from operational and investment activities amounted to £3.5M in the 2019 financial year, which compares to £4.1M in the prior year, which is impressive given the considerable investments and progress made by the company. AFC is pre-revenue so we have focused on cash flow changes.
Q2: Brendan, has this changed your forecast in anyway?
A2: No, the financial results haven’t changed our forecasts. However, we used the opportunity to normalise the discount rate applied in our long-term DCF model from the punitive rate of 12% to 10%. We believe this is appropriate because we see i) material investor interest in the sector evidenced by strong relative stock market performances of AFC Energy and Ceres Power and ii) increased media and investor attention focusing on the need for off-grid charging of electric vehicles in order to meet government targets due to limitations of electrical distribution networks. Changing the discount rate has increased our valuation.
WH Ireland is a financial services company offering Private Wealth Management, Wealth Planning and Corporate Broking services. The Private Wealth arm provides discretionary and managed advisory services to individuals, corporates, trusts and funds.