Shares of AFC Energy (LSE: AFC), Quindell (LSE: QPP) and Tiziana Life Sciences (LSE: TILS) have rocketed since the start of the year. Are the fireworks over, or can these three stocks continue to soar?
AFC Energy, which listed on the AIM Market in 2007, describes itself as “the world’s leading developer of low-cost alkaline fuel cell technology”. The company is focused on large-scale industrial applications.
AFC’s POWER-UP project aims to demonstrate the world’s largest alkaline fuel cell system at an industrial gas plant in Stade, Germany. The project represents the final phase of pre-commercialisation development, and, if successful, will create a platform for global commercial deployment. The schedule is ambitious, but newsflow has been good, and the shares — which had been languishing at under 10p — are currently trading at 39p, valuing the company at £120m.
Further news that the project is on track — including initial power production at Stade in July — could see the shares rise further. The outcome of full testing targeted for December is the biggie. Given the size of the commercial opportunity, a validation of AFC’s technology on an industrial scale could see the valuation of the company rise steeply.
Quindell was one of the most heavily-shorted shares in 2014, but anyone buying in at sub-40p lows at the back-end of the year has seen a spectacular increase in 2015. The shares are currently trading at 125p, valuing the company at £545m.
Quindell is set to sell its problematic professional services division to Australian law firm Slater & Gordon (S&G) for an initial cash consideration of £637m. The deal — which is subject only to approval by the Financial Conduct Authority (FCA) — digs Quindell out of a hole, caused by aggressive accounting and lower than anticipated cash flows. Quindell’s new management expects to be able to pay down debt, retain enough cash for investment in the retained business, and return up to £500m to shareholders.
So, assuming a £500m return, the market is currently valuing what remains of Quindell at just £45m. This consists of a core of telematics-related businesses (for which the company is rumoured to have rejected a £50-£60m offer), some non-core operations that are up for sale, and an entitlement to a share of future settlement fees from a portfolio of hearing-loss claims that passed to S&G.
Quindell is set to publish re-stated accounts by the end of June. If management can demonstrate that “new” Quindell is worth more than the £45m the market is currently valuing it at, the shares could rise accordingly. This could potentially come from one or more of the following: the performance of the telematics businesses (or an offer for them), cash realised from the sale of non-core businesses, and news on hearing-loss fees. Confirmation of the expected FCA approval for the S&G deal and a firm commitment by Quindell’s management to return cash to shareholders at the top end of the proposed “up to £500m” are other potential catalysts for the shares to move higher.
Tiziana Life Sciences
This clinical stage biotech company listed on AIM just over a year ago through a reverse takeover. The company is focused on discovering and developing novel molecules for the treatment of metastatic cancers (cancers that spread from the primary site to other parts of the body). The company’s initial research programme is targeting therapeutics for late-stage breast cancer.
Tiziana has identified an inhibitor candidate and is seeking to discover further molecules with improved profiles. The company is aiming to select a clinical candidate in the fourth quarter of this year, and to be ready to prepare and submit a US New Drug Application in the fourth quarter of 2016. Tiziana has other assets — most recently the acquisition of an exclusive licence for a novel anti-cancer stem cell agent — and the shares have risen strongly in recent months: they currently trade at 135p, valuing the company at £125m.
The valuation of biotech businesses always involves considerable speculation, and I’m not sure Tiziana — which looks like it’s going to burn cash for as far ahead as the eye can see — merits a £125m tag at this stage. Which is not to say the shares can’t go higher in anticipation of positive newsflow. Speculation and momentum can often drive the shares of this type of company in the short term.
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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.