Beneath calm waters lies a strong currentWhile there hasn't been too much announced on the ASX, there is a lot going on behind the scenes globally. The Media Update thread is full of evidence of the progress made, so give it a visit if you haven't already.What I will be keeping an eye on is the cash burn in Q2 and forecast cash burn for Q3. This will give us a good idea if Henry's comment that the business is funded to profitability is backed by cash flow. The Ivory Coast financial close will not doubt play a big part in this being true, so we wait and see on this front.
Another aspect that should interest shareholders is Fluence's new investor relations manager, Adam. Since Adam has joined, we have not seen as many ASX announcements regarding smaller contract wins. This is largely due to the threshold for ASX announcements being lifted to US$3m, or strategically significant, which sets a very high hurdle for Aspiral sales, with approx US$70k per Aspiral unit .. meaning only sales greater than 43 units will be announced on the ASX (largest so far is 40 from iTEST in Mar19). So if we do get an ASX announcement for bulk sales, it is sure to be very significant.
Having said that, what this hopefully means is that the quarterly activities report is much more informative and price sensitive. Whereas previous quarterly reports have largely been a rehash of previously announced ASX announcements, the increased US$3m threshold means there could be a lot of smaller contract wins that will only be made known to shareholders once every quarter. I am hopeful that the quarterly at the end of July will provide just that.Summary of media releases
1 April 2019 BOOT facility drawndown for projects won in 2018, which will help with cash flow management.
3 April 2019 Fluence partner with Aquatec Maxcon as distributor of our products in Australia. This could be a very lucrative partnership with minimal commitment from Fluence, allowing access to Australia's mining sector, coastal and regional communities. Fluence are touring Australia to meet with our mining industry in early July with an Israeli entourage of water treatment solution providers.
5 May 2019 First Nirobox sale in the US, with a SW XL unit sold in New Mexico as a Pilot for Laguna Development Corporation (LDC). LDC manage some small casino's and pitstops and travel centres along Route 66. LDC are looking to expand their presence in the Eastern region of Laguna and will be looking to expand on their initial purchase if the product performs to expectation.
13 May 2019 US$10m Brazilian desalination plant win, which is Brazil's largest desal plant to date. This is impressive as we are up against other giants in this space, one of which is IDE tecnologies a huge Israeli water treatement/desal company. Moreover, this contract is likely to be with Arcelormittal, which is the world's largest steel producer and a repeat customer of Fluence.
22 May 2019 AGM in Melbourne. While there wasn't any new information provided by management, guidance was reaffirmed. At almost half way through the year, this is reassuring and guides shareholders toward a very strong second half. If you haven't already, have a read of an awesome summary of his experience at the AGM by @DungivenPost by Dungiven.
On the horizon
Ivory Coast - financial closeThe financial close for this €180m project in Africa is expected to be completed this quarter. Once complete, discussions on the O&M contract can commence and the tender should be awarded to Fluence.. this should be a high margin recurring revenue source for many years to come. Looking for the O&M to be finalised in Q4.
China
We've had numerous presentations at conferences, exhibitions, hosted industry and government official visits to our installations... it nearing the time for these to convert into bulk sales in the second half of 2019 and beyond. I am confident there have been Aspiral sales made in Q2 in China, however given the US$3m threshold for ASX announcements .. most would fall beneath this and not be announced on the ASX. I look forward to the Q2 activities report to see exactly how the uptake of Aspiral is going in China and globally.
BrazilThis region has received significant focus from Fluence in recent times, which resulted in a significant US$10m desal project which is the largest in Brazil (for now). A lot of roadshows and seminars taking place as we speak ... strong growth potential given the recent push by the Brazilian government to adopt desalination as a solution to their water crisis across the country.
SUBREThe launch of SUBRE in Q1 was much earlier than expected, most likely due to customer demand for our Greenfield product. However prior to this year, the SUBRE launch was expected to be in the second half of 2019 where the retro-fit product would be launched. Retro-fit revenue will be highly variable, and dependent on the size of the existing plant that will be upgraded. I have been guided that an average retro-fit installation will be in the low single digit US$m, but some could be higher.
Maryland - Chesapeake Bay
We have been invited to tender for this restoration project, however the latest update is that the tender has been delayed by the council as they continue to work on what work is required. Whilst the dollar value to FLC of this tender will not be significant (our share of the project will be approx. US$1.2m), if we win the tender it will be a significant milestone for Fluence and act as a significant reference site that will drive US Sales for many years to come. Hopeful for a Q3 update.
BOOT projects
We haven't heard anything on this front yet in 2019, but management are making use of the US$50m project finance facility which was announced in November 2018. This will help with their cash management. With projects heavily skewed to the second half for Fluence, and one of management's objectives in FY19 of growing the recurring book.. I am expecting some decent sized wins in this space in the second half.
Focus now turns to the second half of the year, with the Ivory Coast financial close in Q3 a key milestone for management to achieve this coming quarter.
FY19Q2 Share price performance
Opening share price (29 Mar 19): A$0.505
Opening share price (28 Jun 19): A$0.390
Change: -A$0.115 (-22.8%)
Market cap
Opening issued shares / market cap(29 Mar 19): 537,375,296 / A$271.4m
Closing issued shares / market cap (28 Jun 19): 537,375,296 / A$209.6m
Change: -A$61.8m (+22.8%)
Cash position 31 March 2019: US$24.3m
30 June 2019: TBC by end of July, estimated at US$17.8m (based on quarterly cash burn of US$6.5m).
Add to My Watchlist
What is My Watchlist?
