Fuel-cell firm AFC Energy (LSE: AFC) and software company Fusionex International (LSE: FXI) are AIM-listed small caps with great potential. Can they deliver the stunning returns that supporters believe they will?

AFC Energy

AFC Energy made excellent progress last year on its 11-step project to prove its low-cost fuel cell system on an industrial scale at a gas plant in Germany. News on the final milestone — full commissioning — is expected by the end of next week.

AFC recently raised £3.6m for working capital via a subscription and shareholder offer. Shareholders were supportive, with the company confirming this week that the offer was 3.8 times oversubscribed, and announcing today that subscribers will receive 26.38% of the number of shares applied for.

The share price of AFC probably got a bit ahead of itself last summer, rising to a high of 58p, as investor excitement built with the successful completion of the early milestones in Germany, and news of interest and early-stage agreements with potential adopters of AFC’s system in Asia and the Middle East.

However, the market has since taken a more realistic view of the value of a company which still has a good way to go to commercialisation and profits. The shares are currently trading at 25p, giving AFC a market capitalisation of £77m. If the full-commissioning trial is as successful as the previous development milestones, the company could come to be worth a significant multiple of its current value. As such, AFC could prove a good buy for investors looking for a higher risk/higher reward opportunity.


The buzzwords of Big Data and Internet of Things give Fusionex an added aura of growth potential; and, indeed, growth dominated the company’s annual results yesterday, which were ahead of expectations.

Fusionex reported revenue growth of 35% and earnings growth of 28%. And the company said it anticipates the growth trend accelerating, with chief executive Ivan Teh commenting: “The new financial year has started on a very strong note … the outlook for 2016 and beyond is very positive and exciting for Fusionex”.

Fusionex’s shares dived 36% on the day from 330p to 212.5p! And this despite house broker Panmure Gordon reiterating its buy recommendation and increasing its target price to 744p!

There were several features of Fusionex’s results, which we’ve seen in a number of car-crash companies over the past year — particularly off-shore-domiciled overseas firms. These may have been behind the market giving a big thumbs down to Jersey-registered Malaysian Fusionex yesterday.

The financial statements showed a massive 250% rise in trade and other receivables. Development costs not charged against profits also increased markedly by 50%. Meanwhile, net cash flow was actually negative. Also, it might be noted, that, somewhat bizarrely, despite having substantial cash on the balance sheet, Fusionex also has a stack of borrowings.

Today, the company released a statement, reiterating that the increase in trade receivables was “as a result of the business moving increasingly to channel partners”, and adding that 82% of the year-end receivables have since been collected. However, the shares have recovered a mere 1% to 215p following this statement. The market remains sceptical, and so do I, despite what looks on first sight an attractive P/E of 25 for a company growing earnings at 28%.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.