AFC Energy (LON: AFC) (OTCPK: AFGYF) shares are up 19% this morning. AFC shares have risen off the back on an announcement of a joint venture with Speedy Hire. Which is interesting, we agree it is. But it's also true that this announcement with Speedy has added £20 million or so to the market capitalisation of AFC Energy. Which, when the actual deal itself calls for a £2 million purchase seems more than a little excessive. Or perhaps not excessive, but building in a great deal of hope about the future.
The announcement: “AFC Energy plc (AIM: AFC) ("AFC Energy"), a leading provider of hydrogen powered generator technologies, and Speedy Hire Plc (LON: SDY) ("Speedy"), the UK's leading tools and equipment hire services company, are pleased to announce the proposed launch of a dedicated hydrogen powered generator plant hire business.” Makis perfect sense to us to try this. Power plant here is necessary for building projects. Some will indeed be willing to have hydrogen powered rather than diesel. How many is something that can really only be found out by doing it. So, do it and go and find out. That's just how market economies work, people trying things and seeing if they work.
However, there's this part which might limit enthusiasm: “ Once established, the JV will initially purchase 30kW H-Power Generators from AFC Energy for a consideration of c.£2m in aggregate.” The actual commitment is that the JV will purchase £2 million worth of such generators. At which point the market capitalisation jumps £20 million?
AFC Energy share price from Google Finance
It is possible to get much more excited about this. To think that striking a deal with Speedy Hire is the starting point of a glorious conquering of the market for example. Or a confirmation of the technology, that sort of thing. And it's possible - possible - that this is true too. But we'd suggest that we're still at the long odds end of that argument.
Just to note we think hydrogen and fuel cells are going to be an important part of the climate change revolution. Especially so in times and places when dispatchable power is essential - a building site being one of those. But we do still think that a £20 million uplift in market capitalisation on a £2 million revenue agreement might be taking enthusiasm a little too far.
