Fluence has secured a deal for its Aspiral product in China that should generate at least US$45m in revenue over the next three years. This deal is significant as, aside from the financial benefit, it demonstrates the size of the opportunity for Aspiral in China. Greater investor confidence in Fluence’s prospects here could drive a sharp re-rating of the shares, in our view. We make no changes to numbers now but will review estimates after the Q3 trading statement.
Written by
Fluence |
China Contract catalyst? |
Contract win |
Industrials |
15 October 2018 |
Share price performance
Business description
Analysts
Fluence Corporation is a research client of Edison Investment Research Limited |
||||||||||||||||||||||||||||||
Fluence has secured a deal for its Aspiral product in China that should generate at least US$45m in revenue over the next three years. This deal is significant as, aside from the financial benefit, it demonstrates the size of the opportunity for Aspiral in China. Greater investor confidence in Fluence’s prospects here could drive a sharp re-rating of the shares, in our view. We make no changes to numbers now but will review estimates after the Q3 trading statement.
Year end |
Revenue (US$m) |
EBITDA* |
EPS* |
EV/Revenue |
EV/EBITDA |
P/E |
12/17 |
33.2 |
(23.6) |
(0.07) |
2.9 |
N/A |
N/A |
12/18 |
107.0 |
(13.8) |
(0.03) |
0.9 |
N/A |
N/A |
12/19e |
154.0 |
(2.0) |
(0.01) |
0.6 |
N/A |
N/A |
12/20e |
194.4 |
11.9 |
0.02 |
0.5 |
8.2 |
14.2 |
Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, share-based payments
First high volume Aspiral contract
Fluence has announced a deal with ITEST, a provider of engineering services to the highway network in central China, to supply its Aspiral containerised wastewater treatment to highway service stations. The agreement is expected to provide a minimum treatment capacity of 66,000m3/d three years from now, with 80 stations (c 30,000m3/d) being equipped in the first 18 months. Combined with sales of accompanying equipment, the company expects this deal to generate revenues of at least US$45m over three years; we estimate over US$20m of which will be delivered by FY19. This deal is the first high volume sale of Aspiral.
What are the implications?
We see this deal having three significant implications for investors. First, it is a major stamp of credibility for Aspiral and Fluence’s decentralised approach more broadly. Success in China, a highly cost-sensitive market with high wastewater effluent standards (Class 1A), bodes well for its wider prospects. Second, it highlights the huge potential of the China market. In our initiation note, Time for better treatment? we estimated that initiatives to upgrade rural wastewater treatment was a US$4.7bn opportunity and that success here was probably the most significant driver of long-term value for investors. Third and finally, it beats our current estimates pencilled in for Aspiral in China at a stroke. We will review numbers more fully after the Q3 trading statement (due before 31st October), but we would note that the risk to our estimates is on the upside. Given Aspiral is relatively high margin, this deal should give investors increasing confidence that the company can hit its target to reach EBITDA breakeven by the end of FY19. We believe uncertainty here has affected Fluence’s valuation (see our initiation note); increasing confidence in forecasts could drive a sharp re-rating of the shares.
>
|
Disclaimer
|
|
Disclaimer
|
Research: Real Estate
Town Centre Securities (TCS) continued to reposition its portfolio in FY18, seeking to ensure a resilient income stream and unlock future growth potential. Underlying earnings were robust, supported by like-for-like rental growth, a good level of occupancy and further growth in car parking revenues and profits. Refinancing has provided significant additional financial flexibility as TCS continues to invest for future growth, and the DPS was increased 2.2% to 11.75p, representing a yield of 4.7%, while the shares trade at a significant discount to NAV per share of more than 30%.