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Water Merger In Search Of Fluency

Speaking of water, about the only Australian aspect of the globalized, New York headquartered Fluence (formerly Emefcy) is it happens to be listed on the ASX.

But foreign provenance didn’t preclude us from owning Russell Crowe and the late John Clarke and we would claim Lorde if we could. So on these precedents, we shamelessly declare Fluence as an Aussie company taking on the world with its patented reverse-osmosis water purification technology.

Backed by US venture capitalist Richard Irving, predecessor Emefcy listed via the back door in late 2015, raising $14m at 20c apiece in the process. Shareholders of the ASX-listed Emefcy recently approved the acquisition of US counterpart RWL Water, owned by billionaire entrepreneur Ronald Lauder.

An heir to the Estee Lauder cosmetics empire, Lauder has invested $US20m ($25m) in Fluence, over and above his scrip entitlement of just over 100m Fluence shares, for a 34% stake in the company.

Emefcy stock had done well since listing, racing to as high as $1.07 on management’s promise of selling low-maintenance purification units to users such as resorts and small towns. While Emefcy’s technology is more advanced, the more established RWL had 7000 plants globally in 70 countries and this calendar is expected to generate revenue of around $US90m.

Emefcy’s units based on membrane aerated biofilm reactors, which push the unpure water through the filters using 90% less energy than traditional reverse osmosis.

They require only low operating expenses and are suitable for off-grid locations. Emefcy has operating test sites in water-starved Israel and is gaining traction in China through eight partnerships.

Earlier Emefcy cited an average set-up cost of $US277,000 for a 100 cubic metre a day plant, compared with around $US660,000 for a standard facility.

Fluence (former Emefcy) director Ross Haghighat says Chinese buyers want the packaged kit, rather than having to acquire bits and pieces to build a plant. “It’s like a Lego kit with all the critical components,” he says.

RWL’s products are more off the shelf, but it brings to the table a client base that includes Halliburton, Coca Cola, Pepsi, GM and Procter & Gamble. Fluence last week announced a deal to build a facility for one of Italy’s biggest chicken processors, Avimecc.

Recently the $US13bn water treatment sector has undergone consolidation, with the bigger operators such as GE and Veolia taking out the mid-tier companies. Because if this, Fluence emerges as a leading middle-market player with limited competition in the off-grid market (facilities from 50,000 to 10m litres per day).

Currently, Fluence’s market cap nudges $200m.

In comparison, the New York listed desalination specialist Aqua Ventures - market cap $US900m - turned over $US110m and made a $US16m loss last year.

View More Articles By Tim Boreham

The New Criterion is authored by Tim Boreham.

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades' experience of business reporting across three major publications.

Tim Boreham has now joined Independent Investment Research and is proud to present The New Criterion, which will honour the style and purpose of the old column. These were based on covering largely ignored small to mid cap stocks in an accessible and entertaining manner for both retail and professional investors.

Disclaimer: The author nor Independent Investment Research have received a fee or any kind of inducement for this article. The New Criterion is not intended as specific investment advice and readers should contact a licensed financial adviser.



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