Shares of Sirius Minerals (LSE: SXX), Fevertree (LSE: FEVR) and AFC Energy (LSE: AFC) have been soaring, but are there still big gains to be had for investors today?
Sirius Minerals
Potash miner Sirius Minerals saw its shares make a low of 6.95p earlier this year, but are currently trading at 17.5p, with a high of 24p in-between times. Four weeks ago the company received planning consent from the North York Moors National Park Authority to go ahead with the construction of its flagship project, which will be the world’s largest potash mine.
The planning decision was the biggest single hurdle in what will be a long route to production, and speculators who bet on the turn of the planning card have been rewarded. The recent fall-back from the share-price highs, suggests short-term traders have taken their profits.
Now may be a good entry point for longer-term investors, although Sirius remains a relatively high-risk proposition. That’s because the challenges of financing the project, and delivering it on time and on budget, all lie ahead.
Sirius’s current market valuation is £380m, while annual revenue in excess of £1bn is the target. So, there’s clear potential for the company to achieve a significantly higher valuation in future. There will doubtless be some dilution of equity along the way, but Sirius intends to access debt markets for the majority of the construction. There is extensive experience of both mining and financing across the board of directors (added to by a new non-executive appointment today), which bodes well for a successful execution of the finance strategy and delivery of the project.
Fevertree
Fevertree was established in 2005 to produce high-quality tonic water to complement the UK’s artisan gin revival, and has since extended to other premium mixers. Fevertree joined the stock market last November, with an initial public offering at 134p a share. The shares have since soared to a current high of 368p, valuing the company at £424m.
Fevertree released its interims results today, reporting a strong performance: revenue was up 62% and adjusted earnings (before interest, tax, depreciation and amortisation) soared by 68%. But never mind the paper profits — operating cash flow more than doubled.
A forward price-to-earnings (P/E) ratio of 40, falling to 34 next year is a premium rating. The current growth rate may justify the lofty valuation, but the risk is that the shares could fall hard on any slip up — not unknown for a relatively young company.
AFC Energy
AFC Energy is developing alkaline fuel cell technology for large-scale industrial applications. The shares have soared this year from 10p to a current 54p (valuing the company at £156m), having hit a high of 58p a week ago.
The rise in the shares has marched with positive newsflow on a project at an industrial gas plant in Stade, Germany, which represents the final phase of pre-commercialisation development. The company announced today that it has executed its first commercial power purchase agreement for the sale of electricity generated at Stade. This will be useful because the company is currently loss-making at the operating level (a profit in the latest half-year results is merely down to the revaluation of a derivative financial asset).
AFC Energy is hard to value at the moment, but the market opportunity is vast and it is not hard to see the company being worth a multiple of its current valuation in due course.