AFC Energy PLC

AFC Energy PLC (LON: AFC) is a FTSE AIM UK 50 index listed provider of hydrogen power generation technologies.

Investment Rationale – SPECULATIVE BUY at GBX 43.95

• Strong Outlook: The outlook of AFC seems positive following the transformation year as it received commercial orders from ABB, and the certification of the Company's fuel cell systems.
• Positive Trend: The accelerating demand for electric vehicles would uptick the demand for additional fast charging capability.
• Financial Growth: AFC generated a revenue of £0.15 million in H1 FY21 (H1 FY20: £nil) from initial recognition of Extreme E commercial. At the end of H1 FY21, it held cash balance of £61.6 million (H1 FY20: £2.8 million), while the Company made significant investments in product development.
• Technical Indicator: From a technical standpoint, 14-day RSI (~35.20) indicating an oversold scenario, while the stock price is hovering close to the lower Bollinger Band.
• Outperformance Against Index: AFCs stock price has surged over 122% in the past five years, reflecting a significant outperformance against the FTSE AIM UK 50 index.

Key Risks

• Demand Uncertainty: As the global demand outlook for energy is unstable due to the Omicron variant, while there are significant operational challenges. The short-term outlook for the Company looks skeptical with the resurgence in Covid-19 cases.
• Inflation Woes: Higher input costs due to supply chain disruption and labor absenteeism can also hamper the profitability margins.

Recent News

• Fuel Cell Order: On 16 November 2021, AFC Energy received a contract worth £4 million from ABB B.V., regarding a fuel cell system for high power e-Mobility charging.

Year End Operating Statement (for the year ended 31 October 2021, as on 16 December 2021)

• Fundraising: It concluded a £36 million of oversubscribed institutional fundraise, cornerstoned by ABB.
• Investments: It invested in new engineering, manufacturing, commercial and research teams to support the Company’s prospects.
• Commercialization: AFC signed a commercial agreement worth £4.5 million in FY21, while it has a pipeline of system sales and lease opportunities, underpinning future revenue growth.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Conclusion 

The strategic partnership with ABB, successful entry into maritime sector, and first commercial S Series fuel cell and ammonia cracker order, shall drive incremental shareholder value. Moreover, it has delivered the first commercial fuel cell power system to Extreme E. It also invested robustly in product development and increased headcount.

Nevertheless, AFC has a small market capitalization and is yet to be profitable. Therefore, investors should gauge their risk-return profile before punting on this stock. The stock made a 52-week High and Low of GBX 87.52 and GBX 40.05, respectively.

Based on strategic partnerships, ABB's order, rising demand for electric vehicles, new product releases in the pipeline, we have given a "SPECULATIVE BUY" recommendation on AFC Energy PLC at the closing price of GBX 43.95 (as on 7 January 2022).

Sensyne Health PLC

Sensyne Health PLC (LON: SENS) is a FTSE AIM All-Share listed Company that provides clinical artificial intelligence related services.

Investment Rationale – SPECULATIVE BUY at GBX 76.00

• Partnerships: Recently, it signed a strategic partnership for SENSIGHT; attained one-year agreement with Exscientia; and collaborated with with Cambridge University Hospitals NHS Foundation Trust, to find better ways to treat cancer.
• Increased Patients: it is progressing well to achieve 100 million patient records by December 2024.
• Strategic Collaboration: The partnership with Phesi shall enhance offering to pharmaceutical and biotechnology clients.
• Top-line Growth: In FY21, total revenue increased to £9.1 million from £2.1 million in FY20.
• Technical Indicator: From a technical standpoint, 14-day RSI (~20.80) indicating an oversold scenario, while the stock price is hovering close to the lower Bollinger Band.

Key Risks

• Economic Slowdown: Fall in the UK Composite Purchasing Managers' Index in December 2021, weak industrial date, global shortage of semiconductors, supply constraints, tightening of monetary policy can hamper early enthusiasm about demand.
• Liquidity Risk: The Company is yet to be profitable even operationally, while it reported net cash outflows of £8.1 million in FY21 (FY20: £17.6 million). Therefore, it is exposed to a significant liquidity risk.

Recent News

• Response to disciplinary notice: On 30 November 2021, SENS settled terms with the LSE by paying a discounted fine of £406,000, for historical breaches of AIM Rules 13 and 31 in relation to the payment of certain IPO bonuses in 2018.

Financial Highlights (for the 12 months ended 30 April 2021, as on 1 October 2021)

(Source: Company Website)

• Operational Highlights: SENS increased its patient records to 8.9 million by 30 April 2021 through significant of new Strategic Research Agreements. It also launched MagnifEye™ and collaborated with Phesi, Inc, Alexion, and Bristol Myers Squibb.
• Fundraise: In January 2021, it raised £27.5 million via equity placing and invested US$10 million into Phesi as part of strategic collaboration.
• Liquidity: At the end of FY21, the Company reported cash and cash equivalents of £23.6 million.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Conclusion 

SENS has strengthened its business development activities, launched several platforms, and looked confident of generating strong revenue growth in FY22. Moreover, it has demonstrated a solid growth over the past year and made some strategic collaborations and accelerate the development of new medicines. The stock made a 52-week High and Low of GBX 190.00 and GBX 75.17, respectively.

Based on the revenue growth, considerable collaborations, strategic partnerships, equity placing, we have given a “SPECULATIVE BUY” recommendation on Sensyne Health PLC at the closing price of GBX 76.00 (as on 7 January 2022).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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