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AFC Energy plc Vs APR Energy PLC: Which Is The Better Buy?

The question of energy sources continues to be a major one across the globe. While fossil fuels remain a key part of the mix in both the developed and developing world, the use of greener and cleaner fuels is on the rise. And, while permanent solutions need to be found for the long term, shorter term power supplies remain a crucial part of the energy mix – especially in the developing economies of the world.

As such, the likes of AFC Energy (LSE: AFC) and APR Energy (LSE: APR) appear to hold relative appeal for investors. The former is focused on low-cost alkaline fuel cell technology, while the latter provides temporary power solutions at relatively short notice. Their share price performance in 2015, though, reflects a major difference in investor sentiment, with AFC’s share price having soared by 323% since the turn of the year while APR’s valuation has slumped by 60% (although its shares are up by 15% today).

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Looking ahead, AFC appears to be a company that is very much on the up. For example, it has signed multiple agreements to deploy its technology across the globe. A notable success on this front is a joint venture in South Korea (of which AFC holds a 40% stake) which is expected to generate $1bn of revenue in the next decade. Furthermore, AFC’s KORE system in Germany has been commissioned and has commenced operation, which is yet another indication that the company is moving from strength to strength. Evidence of this can be seen in the fact that AFC swung into a half-year profit for the first time earlier this year, which indicates that its business model has the potential to deliver real value for its investors.

APR, meanwhile, is undergoing a somewhat challenging period regarding its finances. It swung to a loss for the half-year in its results released a week ago, with it apparently expecting little improvement in the second half of the year. And, with the decision to pull out of Libya and Yemen contributing to a fall in revenue of around 52%, the company’s pretax profit of $54m from the previous year’s period declined to a loss of $58m in the most recent period.

This has caused APR to seek a renegotiation of its financial covenants and loan agreements, since it believes that it will fail to meet them for the current quarter. Clearly, this is likely to cause investor sentiment in the stock to remain somewhat subdued, with today’s double-digit rise bucking a trend that has seen its shares slump by 25% in the last month.

Of course, APR Energy continues to win lucrative new contracts such as a twelve month contract in Egypt to build three gas turbines, as well as a two year contract to provide 35 megawatts of power in Botswana. However, with such a great deal of uncertainty surrounding its financial position, it appears to be a stock worth watching, rather than buying, at the present time. Meanwhile, with improving financial performance, huge long term potential and the possibility of further contract wins, AFC Energy seems to me to be a strong buy right now.

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Peter Stephens owns shares of AFC Energy. 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.

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