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The global challenge of clean water

11062021_Fluence

The global challenge of clean water

Shortages of clean water are a global challenge and often water infrastructure is costly to deploy and maintain. Global water-treatment company Fluence Corporation is the only water treatment company of its kind offering plug-and-play decentralised water and wastewater treatment solutions driven by its proprietary solution.

Listed on the ASX in December 2015, Fluence Corporation Limited’s (ASX: FLC) water and wastewater treatment solutions are rapidly deployed, energy-efficient, automated and can scale from clusters of homes to cities. Fluence’s proprietary MABR wastewater treatment technology was developed in Israel and has been deployed in 250 plants to date. Global markets for Fluence’s solutions are estimated at over US$50 billion per year. In calendar year 2020, Fluence reported revenue of US$97 million, positive EBITDA of US$2.3 million, and has US$63 million in cash and bank deposits.

Innovation in treating water

Fluence’s proprietary MABR technology was identified as one of the top 10 water innovations of the past decade[1]. MABR plants are pre-engineered, fully automated, unmanned and neighborhood friendly with no odor or noise. At the heart of Fluence’s MABR, is a self-respiring, spirally wound membrane envelope that passively delivers oxygen directly into the wastewater so that helpful bacteria can grow. The treatment plant is space-efficient, while producing a high-quality effluent suitable for reuse in irrigation, dust reduction, toilet flushing, and other reuse applications.

The company states that MABR provides the highest quality wastewater treatment and reuse at the lowest capex, operating cost, energy and chemical use, with total cost of ownership 30-70 per cent lower than competing systems. Fluence’s water and wastewater treatment solutions enable plants to be operational within weeks versus 18 to 36 months typical for custom engineered solutions.

Fluence also sells NiroboxTM a rapidly deployed smart desalination system.

Fluence’s target markets for MABR are in Asia and North America, and for NiroboxTM are in southeast Asia, North America, and the Middle East. Fluence received its first volume contract for the Yangtze River Great Protection Program, managed by China Three Gorges Group Corporation in April 2021. Now with four volume partnerships in China, to date Fluence has sold 223 MABR plants.

In North America the company focuses on commercial customers such as operators of hotels, office buildings, and managed real estate developments, providing water as a service, typically achieving long-term recurring revenues at an IRR of 25 per cent or more.

Screen Shot 2021-06-10 at 3.19.39 pm

Source from Fluence showing the plants in Asia and the Middle East

How big is the target market?

China’s latest five-year plan (2020-2025) for the first time specifies wastewater reuse targets ranging from 25–35 per cent in water-stressed regions which is anticipated to require significant deployment of new and upgraded treatment. Based on China Ministry of Housing Data, this represents a US$4 billion market opportunity over the next four years assuming new or upgraded treatment is needed to achieve these targets.

Fluence focuses on selling decentralised water and wastewater treatment solutions which are capable of achieving sustained revenue growth.

In its Q1 2021 business update the company reported an 11 per cent increase in new orders on Q42020 and net cash position of $42.3 million. Over the next two to three years Fluence anticipates achieving a business model with an average 35 per cent gross margin, operating expenses not exceeding 20 per cent of revenues, and therefore EBITDA of 15 per cent or more.

You can read more about Fluence at their investor centre here.

[1] Global Water Intelligence, 2020

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Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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Comments

  1. Another wastewater treatment company is the new Clean Teq Water company being spun off from Sunrise Energy Metals (SRL). Clean Teq has installed a few plants now. SRL shareholders will soon get free shares in CNQ (Clean Teq Water) from a demerger from SRL. I think CNQ will have a great future.

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