A solid start to 2019 with some key pieces falling into place for FluenceThe new calendar year kicked off with some impressive detective work from our resident Sherlock
@morganp Holmes. Unearthing a yet-to-be announced project win in Egypt with Hassan Allam Holding, prompting the company to issue an ASX announcement on the matter. More on this later.
FY18 revenue guidance of US$105m was met, bar an accounting adjustment which meant approx US$5m of FX gains would be reclassified out of operating income to non-operating income. Final audited results of US$101m vs target of US$105m reflected this adjustment.
On 13 February Fluence announce its first big piece to fall into place for 2019, whereby the MABR (Aspiral) demonstration plant which was operational since January 2018 at Stanford University's Codiga Resource Recovery Centre (CR2C), had met California's strict Title 22 standard. At the event organised by Fluence to present these results to the industry, Fluence was invited to be part of the Chesapeake Bay tender in Maryland. A high profile restoration program that will be Fluence's first chance to showcase its new MABR technology to the industry in mainland US.
On 27 February Fluence announce that the much talked about "Africa deal" is unveiled to be a 150,000 cubic metres / day water treatment plant in Ivory Coast. What was initially guided as a US$100m project, turned out to be a US$185m / €175m / A$277m project, with financial close estimated to be achieved in Q3. With US$20m revenue expected to be recognised in FY19, a further US$80m in FY20 and the balance in FY21. The O&M contract is up for tender, which could lead to a source of significant recurring revenue.
On 14 March Capital Group sell out of FLC by selling 25m shares at 35 cents to US based Watermark Services, who now hold 8.9% of the company and is fund controlled by Jay W Faison, a multi-millionaire philanthropist with Republican Party ties. Whilst the influence of Jay W Faison on Fluence's success in the US is not yet known, the immediate impact on Fluence is that a significant shareholder with over 25 millions shares who was selling on market, effectively capping the share price was now removed. Those left scratching their heads as to why the Ivory Coast deal didn't see the share price rise more than a few cents, now knew why.
On 18 March Fluence announce the commercial launch of SUBRE (submerged MABR), which is Fluence's highest margin product and was initially expected to occur in Q2. This was a welcome surprise to have SUBRE launch in Q1, and more surprising to find out that SUBRE had a Greenfield offering on top of the retro-fit product range. Whilst the Greenfield product range is lower value, it is has a much broader market than the retro-fit market, which can only be sold to existing water treatment plants. Greenfield SUBRE can form part of any new water treatment installation to significantly boost its throughput capacity, with minimal increase in plant footprint.
On 20 March Fluence announce the Hassan Allam project win to be a US$20m share in a US$74m desalination plant to supply 40,000 cubic metres / day to New Mansoura in Egypt. Our resident Sherlock Holmes can take credit for this one! The significance goes beyond the US$20m Fluence will receive for supplying the technology, as partners Hassan Allam Holdings are looking to significantly grow their business with the help of Fluence's state-of-the art desalination technology. As Hassan Allam grow, so will Fluence's prosperity.
On 28 March Fluence announce a follow up order from their Chinese partners iTEST, with 40 Aspiral units to be deployed along toll stations, parking lots and service areas along the highways managed by iTEST. This is part of a three year agreement where iTEST must order a minimum of US$45m (estimate) to maintain exclusive rights to Fluence's disruptive Aspiral MABR units. This follow up order is not only bigger than its initial two contracts combined (announced in December 18, where 35 units were sold under two contracts), it was proof that iTEST had verified the performance of Fluence's Aspiral units. This is significant as the likelihood of the US$45m agreement is looking to be met, and likely to be exceeded (high degree of confidence in this given the research done by
@Relax1 and selflessly shared with us here in this forum).
On the horizon
China@nequalsone,
@chord and
@willchang409 have also done a lot of snooping around and found some very promising progress being made at ground level in China. iTEST have jumped the field and are aggressively promoting our Aspiral MABR units, however there are over 20 partners in China who are on the same path, some of whom are much larger and more influential than iTEST. Henry has repeatedly said that the largest growth potential is with our Aspiral/Nirobox units in China. Much like a duck, Fluence look like they are calmly progressing along in China... but beneath the calm, there is a flurry of groundwork being done behind the scenes that has the potential to dwarf the iTEST agreement. I anticipate some significant wins to be announced outside of iTEST later this year.
SUBREAfter an earlier than expected launch in Q1 with its Greenfield product, we are aware that a number of quotes are being made for clients in China and the US. These are likely to be the retro-fit product, which will bring in another significant revenue stream this year.
Maryland - Chesapeake BayWe have been invited to tender for this restoration project, and if we succeed this will be a significant milestone for Fluence and act as a significant reference site that will drive US Sales for many years to come. I am hoping to get an update on this some time in Q2.
EgyptHassan Allam are not the only ones looking to capitalise on Fluence's market leading desalination technology. The Ministry of Housing in Egypt purchased 12 Nirobox units in October 2018 for US$7.6m and assigned Fluence the O&M contract. With housing projects on the rise in Egypt, I am expecting to see the Ministry of Housing to continue to roll-out Nirobox's as housing projects come online.
BOOT projectsWe haven't heard anything on this front yet in 2019, but after a US$50m project finance facility was announced in November 2018, there are sure to be some in the pipeline waiting to be finalised and announced to the market. Fluence was able to secure US$14.7m in recurring revenues in FY18, with the intention of growing this year on year, which leads me to believe that there is news on this front just around the corner.
After such a strong start to 2019, which is usually Fluence's quietest quarter, I can't wait to see what the rest of 2019 has in stall for us all.
FY19Q1 Share price performanceOpening share price (2 Jan 19): A$0.300
Closing share price (29 Mar 19): A$0.505
Change: +A$0.205 (+68.3%)
Market cap
Opening issued shares / market cap (2 Jan 19): 537,375,296 / A$161.2m
Closing issued shares / market cap(29 Mar 19): 537,375,296 / A$271.4m
Change: +A$110.2m (+68.3%)
Cash position31 December 2018: US$38.7m
31 March 2018: TBC by end of April, estimated at US$28.7m (based on quarterly cash burn of US$10m).
