Thread by @DownunderValue

The global water and wastewater industry was worth US$260bn in 2020, growing at a healthy 7% CAGR. Australian technology is well positioned to benefit, but are Australian companies?

Let’s take a look at Fluence $FLC $FLC.AX
Phoslock $PET $PET.AX and Calix $CXL $CXL.AX 👇

1. Tl;dr – De.mem $DEM $DEM.AX is still my #1 pick. The sector passes my baked beans hurdle (growing +4% CAGR), and De.mem have a good business model. Just not sure on their operating leverage?
You can check out the most recent deep dive here:👇

https://twitter.com/DownunderValue/status/1489420491937169408

2. Fluence $FLC $FLC.AX builds decentralized water treatment plants around the world. With over 300 projects under its belt, it has a proven track record in delivering.

3. Fluence uses membrane aerated biofilm reactor (MABR) technology for wastewater treatment (products: aspiral and subre) and desal / water (product: nirobox). 🤷

4. As I mentioned with De.mem, technology like this may be different but it's not unique. Just ignore the word 'proprietary' every time you read it. Here's a picture of the actual market place.

The investment thesis should therefor be focusing on the roll out strategy.

5. In 2017 Fluence signed an MOU with Cote d'Ivoire that led to a €165m project in 2019. Large scale and low margins with no recurring revenue.

The stock soared to a $700m market cap, and crumbled to $120m today. Expectations ran ahead of profits.

6. Management is shifting to higher margin products with a built own operate transfer (BOOT) model – similar to Delorean $DELor De.mem $DEM

I much prefer this model in term of business strategy and unit economics.

7. While the strategy is good, it’s early days.

The company has a revenue cliff with Cote d'Ivoire project ending in FY22; they still have no EBITDA or FCF to see yet. Rather wait for evidence of the turnaround at this stage.

8. Calix $CXL $CXL.AX is an industrial technology development company providing solutions to address global sustainability issues in water, carbon, biotech, batteries, and more.

They do R&D 🤷

9. The no-shame self promotion would make even Elon Musk blush.

“Mars is for quitters” is a tagline of a company trying to rip off retail investors to my mind.

10. You know what’s not for quitters? Revenues.

At $30m revs - $10m of which are one off research grants – Calix trades at 30x sales.

11. Their star product Leilac to reduce Co2 in lime/cement has been valued at $300m through a 7% equity investment.

This represents ~34% of the current MC *after* it dropped $396m since that announcement.🤯

13. ASX has queried in November a director’s transactions, and more worriyingly their marketing of a patent application that they didn’t disclose on the ASX. 🧐

14. Calix could be a great company, but expectations certainly are stretched.

I don’t short, but my guess is the share purchase plan in 2021 priced at $2 is closer to fair than the current $5.42 share price. GLTAH.

15. Phoslock Environmental Technologies $PET is most famous for the rampant fraud in their China operations excellently reported by @mrjoeaston

Phoslock remains delisted at 24.5c or $153m MC
afr.com/rear-window/ph…

16. Phoslock is a modified clay product which removes soluble phosphorus from all kinds of water bodies including fresh, brackish and saline water.

It looks like a bag of chlorine you may add to a pool, and then they throw it off the side of a boat into the lake.

17. Phoslock was developed by Dr Grant Douglas at the CSIRO in 1990s. In 2000 the first application in WA’s canning river was a huge success.

This was patented and then commercialised by PET, the sole manufacturer and IP owner.

18. As PET opened up Chinese factories, expanded projects, got approvals in ~20 countries, etc – the market valued PET at $900m.

They are currently delisted, but should have their first audited accounts coming in Feb – a milestone for relisting.

19. PET has a new board, management and auditors in place. They continue to win new projects and approvals, and are looking at a 2nd manufacturing plant in China.

Healthy balance sheet with $22m cash and no debt, they are positioned to grow.

20. However trying to understand their updates and unaudited is like solving a rubicks cube with your eyes closed.

Simple measures like tonnes sold aren’t included; revenue includes court settlement payouts, etc.

21. PET have a good technology, though the unit economics are unknown and the business is based on non-recurring revenues.

Unless PET relists and trades near it's cash value, there’s got to be easier ways to make money. 🤷

22. Overall, just need to keep turning over those rocks and see what’s out there.

If I was a gambling man, I’d short Calix, long Fluence, ignore Phoslock, all with zero conviction.

If you enjoyed this, bash the like / retweet / follow buttons.

A deep dive per *fortnight* is my commitment to FinTwit.

Questions and feedback always welcome. DM's open. DYOR.

Disclaimer, no position on $DEM $PET $CXL $FLC