Water treatment stocks are making a splash on the ASX. Here’s our guide.
Food & Agriculture
Food & Agriculture
Over the past year ASX-listed water treatment stocks have crept into investor consciousness, with one stock making a 300 per cent gain.
(See our table of ASX water stocks below).
The rise of water treatment as an investment category comes as businesses and governments face an increasing number of challenges maintaining clean water supplies.
China is perhaps the best known case. About a third of China’s lakes and rivers are unfit for human use and three-quarters of its water reservoirs are polluted at medium-to-high levels. Phoslock Water Solutions (ASX:PHK) is working there to treat blue-green algae blooms by safely removing phosphate.
In South Africa, Cape Town police are protecting water collection sites as the city rations its supply. Fluence Corp (ASX:FLC) chief Henry Charrabe says he received a call from a South African woman asking whether their water purification units could withstand gunfire.
He says there is a strong belief in that country that if the water runs out, there will be conflict.
Even western cities face water shortages. London is expected to face shortages by 2025.
Miami is fighting a rearguard action to plug salt water leaks in an aquifer that supplies its drinking water.
The city of Flint in Michigan has been dealing with lead contaminated water since 2014.
Mr Charrabe says these problems are due to bad management. If cities and governments were to plan ahead, rather than once a water crisis emerged, problems could be averted.
But he doesn’t see this happening until people start recognising water has a price.
“There is one thing that will make you value water — and that is when it runs out.”
Mr Charrabe sees re-use as the biggest water issue: piping clean water to a home carries a cost and it shouldn’t be used to wash a car.
Water treatment solutions
But there is a shift happening that is allowing small, high tech businesses to break into the traditionally highly centralised water treatment industry.
In the past a city might build a giant, expensive desalination plants — the unused Melbourne one is an example. Now technology and a new way of looking at problems is opening the sector.
“Looking at the industry I think the macroeconomics are very favourable for the development of this industry,” says the CEO of De.mem, Andreas Kreoll.
There is a lack of infrastructure to cater to rapidly growing populations — and that brings opportunity, says Mr Kreoll.
Mr Charrabe see governments choosing to lease or buy cheaper, quicker-to-install decentralised units which can be moved as needed — water-as-a-service.
There are at least nine ASX-listed companies that provide some exposure to water. Of these, seven are in the water treatment business.
While share prices are largely up over the last 12 months, some of the stocks may be currently undervalued in the wake of the mid-February market correction.
Blue Sky Alternative (ASX:BLA) and Duxton Water (ASX:D20) are investors, buying up water rights within Australia.
Fluence has the largest global reach. It is a result of a merger between ASX-listed Emefcy and US company RWC last year.
It has a footprint in China, Africa, Latin America, Asia, the US, and Europe, where it sells portable desalination units and water treatment units — the way of the future, according to Mr Charrabe.
“Revenue for 2018 is expected to be in the range of $US105 million to $US115 million,” the company said ahead of delivering its annual report.
Fluence closed on Thursday at 46c, with $75 million in cash on hand.
De.mem (ASX:DEM) operates in Asia and Australia, and also has an eye closely focused on China.
It has a very different technology to Fluence but the same ultimate goal: be a decentralised infrastructure water treatment provider.
It has an exclusive licence to a water purifying membrane from the Nanyang Technological University in Singapore, and is partnering with Virtual Curtain China Limited (VCCL), whose tech is from CSIRO.
It owns an Australian, revenue making, business called Akwa-Worx, and has just completed commercial trials of its nanofiltration membrane technology in Singapore and Vietnam.
De.mem closed at 21c. Its full year accounts out on Thursday unveiled a $6.3 million loss and $3 million in cash available to fully commercialise the tech.
Mr Kroell says although it’s a niche group, they have solid investor support in Australia.
Phoslock Water Solutions (ASX:PHK) has just started kicking stockmarket goals with its tech that cleans already-polluted lakes and rivers.
Although the company only began attracting attention about a year ago as it started to make good on the promise of its technology.
It made its maiden profit in the last six months, 16 years after it was founded.
Carbonxt (ASX:CG1) actually filters emissions from coal power stations, but says using it to make drinking water is “potentially the largest market for Carbonxt over time”.
It listed in January at 70c, just before the market tumble a few weeks later. It closed at 57c.
Water Resources Group (ASX:WRG) has a technology that uses ozone to clean water, but has never made any revenue, period. Its shares closed at 56c, as it tries to move into air purification as well.
Clean TeQ Holdings (ASX:CLQ) is the biggest of the water stocks while SciDev (ASX:SDV) is one of the smallest. Both have operations in the mining sector, where they treat sludge and extract small traces of metals.
CleanTeq is managing to cut its losses, according to the half year report, while growing revenue to $1.4 million. It has a market cap of almost $800 million
SciDev’s losses widened a touch to $590,000 but it too increased it revenue — to $1 million. It has a market cap of $5 million.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.