Fluence has signed a Memorandum of Understanding (MoU) to deliver over 250 Aspiral wastewater treatment units to a Chinese partner (Kaitian) and is establishing a local final assembly facility in Yiyang to meet this demand. This is its second high-volume contract in China and, following the recent SUBRE order, provides evidence of both the significant potential of this market and the progress Fluence is making. With a market cap of c US$150m, the full value of this opportunity is not currently reflected in Fluence’s valuation, in our view.
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Fluence Corporation |
Further progress in China |
Progress in China |
Industrials |
5 September 2019 |
Share price performance
Business description
Analysts
Fluence Corporation is a research client of Edison Investment Research Limited |
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Fluence has signed a Memorandum of Understanding (MoU) to deliver over 250 Aspiral wastewater treatment units to a Chinese partner (Kaitian) and is establishing a local final assembly facility in Yiyang to meet this demand. This is its second high-volume contract in China and, following the recent SUBRE order, provides evidence of both the significant potential of this market and the progress Fluence is making. With a market cap of c US$150m, the full value of this opportunity is not currently reflected in Fluence’s valuation, in our view.
Year end |
Revenue (US$m) |
Adj. EBITDA* (US$m) |
EPS* |
EV/Revenue |
EV/EBITDA |
P/E |
12/17 |
33.2 |
(23.6) |
(7.0) |
3.3 |
N/A |
N/A |
12/18 |
101.1 |
(8.5) |
(2.5) |
1.1 |
N/A |
N/A |
12/19e |
120.0 |
(7.5) |
(1.8) |
0.9 |
N/A |
N/A |
12/20e |
207.3 |
5.7 |
0.6 |
0.5 |
18.8 |
45.1 |
Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Fluence has announced an MoU with Kaitian, its local partner in Hunan province in China, to supply Aspiral L4 units to meet a total capacity of 40,000m3/day by the end of 2021. The MoU is still subject to signing binding purchase orders, but builds on its previous pilot deals with Kaitian. The potential revenue impact is not stated, but assuming each Aspiral unit treats c 150m3/day and sells for US$70k, we estimate that the total agreement, recognised over three years, could involve supplying more than 250 Aspiral units and generate revenue of over US$18m. The first products are due to be shipped before the end of 2019. We make no changes to our forecasts at this stage.
To supply these units, Fluence has also signed a letter of intent with the local government to establish an Aspiral production facility in Yiyang with an annual capacity of 120 L4 units. This final assembly facility will be additional to Fluence’s Changzhou factory, which will remain focused on producing its proprietary MABR modules.
We highlighted the potential of China in both our China Contract catalyst and initiation notes. We believe that the initiative to upgrade rural wastewater treatment is a US$4.7bn opportunity and Fluence’s proprietary MABR technology (on which Aspiral is based) is a uniquely cost-effective solution to meeting China’s exacting Class 1A effluent standards.
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Disclaimer
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Disclaimer
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GESCO continues to implement the NEXT LEVEL strategy it launched in autumn 2018 after onboarding the new CEO. After a strong FY18, the company’s recent results were affected by broader economic headwinds. Although incoming orders in Q119 increased 4.3% y-o-y to €156.9m, preliminary Q2 numbers reveal a decline to €130m from a record-high €162.6m in Q218. The trend seems to reflect the recent production slowdown in Germany, with the Mechanical Engineering Industry Association (VDMA) reducing its growth forecast for 2019 from + 1% to -2% in July 2019. Nevertheless, has GESCO reiterated its FY19 guidance.