Most of the larger CES projects in backlog have not yet contributed significant revenue, so current revenues are not a reflection on revenue generating abilities once these projects start up. Q4, 2018 showed that it is possible for Fluence to generate over $40 million in revenue if projects are there to complete. There should be approximately $120 million USD in revenue in 2020 just from backlog of the 4 largest projects. The financial close of Ivory Coast and the restart of San Quintin are crucial to profitability. If there are any long delays, this pushes things back, but guidance today has been reaffirmed, so they are relatively confident things will close soon.
However, if you consider that the single Changzhou manufacturing line has an implied maximum output of $150 million USD per year (I believe with the current type and size of module production this is instead $75 million USD per year), then the installation of a 2nd line before the end of year would suggest that the first line has reached maximum capacity.
So a base level of $120 million from CES and $52 million from SPS does not seem like a stretch as it accounts for almost no actual growth in new partners or orders outside of what has already been announced (or additional Nirobox growth). Really, only the iTEST contract and individual SUBRE orders are contributing significantly to SPS in China at the moment. The Hunan Kaitian and Liaoning Huahong MoUs have not yet started up. I'd expect some additional partners like Zhejiang Tiandi to formalize larger orders in 2020 and for growth from Sichuan Development Guorun Environmental at a minimum.
Let's ignore the share price performance and current revenue for a moment. From the announcements and achievements that have been made in 2019 to date, would you bet against Fluence achieving similar in 2020 and 2021? They may not close too many more large Ivory Coast type projects, but they have shown relatively strong performance in the sub- $20 million USD category.
The hiring of new staff in Egypt recently, plus the BOOT sales manager job I posted today, shows that they will continue to chase opportunities, and the Generate Capital $50 million BOOT finance is there for Fluence to utilize over the next 2 years.
I am continuing to see Fluence win smaller opportunities in South America, with Argentina and Brazil especially of interest. I am excited about the potential of the Philippines and Jamaica.
Water stress is only increasing across the world, and Fluence seem to be in most of the right places to create business opportunities from this, considering the actual size of the company versus their peers.
We also must not forget that this isn't really even a choice for some regions. There is a mandate in China that rural sewage needs to be installed and certain effluent standards be met. Fluence have partners that have hinged their business strategy success on achieving this through MABR technology. Some of these are multi-billion dollar companies. They have done their due-diligence. This isn't a joke to them. Their partnerships are a tick of approval that Fluence meets all requirements.
In the Philippines, Fluence are linked to the largest conglomerate in the country (Ayala Corporation through Manila Water). They have also completed their due diligence on MABR and SUBRE. The government has also passed strict guidelines for sewage that need to be complied with by 2021, so there is a necessity for local businesses to invest in sewage systems.
In the USA, Fluence has passed Stanford testing to California Title 22 standards. In Spain, Fluence are going through similar testing at CENTA.
Do not discount Australian partner Aquatec Maxcon. They can choose who they state their reputation on and after testing have chosen to partner with Fluence for MABR and SUBRE.
So Fluence have the necessary tools to generate business, they just need the time (and financing) to be able to achieve their goals. The more projects they win and deliver, the easier it is to have the required credentials and references to win more. The closer to profitability, the easier it is for them to allocate capital to chasing the better partners and opportunities.
It just depends if we as shareholders have the patience and fortitude to hold long enough to reap the benefits from their execution.
FLC Price at posting:
43.5¢ Sentiment: Buy Disclosure: Held
