This report provides an in-depth analysis and a buy rating for...

This report provides an in-depth analysis and a buy rating for De.mem Ltd (DEM), an Australian company specializing in decentralized water and wastewater treatment systems. Key highlights include:

1. Business Overview: De.mem designs, builds, owns, and operates advanced water treatment systems, offering a comprehensive package of products and services such as chemicals, pumps, membranes, and maintenance. It mainly operates in Australia with growing presence in Singapore and Germany.

2. Financial Performance: The company has shown steady growth with 24 consecutive quarters of increasing cash receipts, reaching cash flow break-even. FY24 sales were $24.9 million, with forecasts expecting growth to $36 million by FY27. EBITDA is projected to turn positive in FY25 and improve substantially by FY27.

3. Acquisitions: De.mem's strategic bolt-on acquisitions like Border Pumpworks and Auswater strengthen its geographic footprint and product offerings, contributing to recurrent revenue streams and operational synergies.

4. Market Position and Industry: De.mem operates in the $300 million Australian decentralized water market, focusing on niche industrial, mining, food & beverage, and infrastructure segments rather than large centralized municipal markets. The water industry is growing steadily due to regulatory demands, aging infrastructure, and rising water quality concerns.

5. Competitive Advantages: The company benefits from market presence, established customer relationships, technical expertise, independent advisory services, and proprietary technologies such as graphene oxide-enhanced membranes.

6. Valuation and Outlook: De.mem is valued at a target price of 17.6 cents per share, representing nearly 60% upside from the current price of 11 cents, using a blended valuation approach combining EV/EBITDA, P/E, and DCF methods. The business is expected to achieve strong operating leverage and margin improvements as it scales.

7. Risks: The report notes possible risks including demand fluctuations, client economic conditions, contract losses, cost pressures, equipment failure, regulatory changes, and cybersecurity concerns.

Overall, the report recommends De.mem as a buy, emphasizing its steady cash flow improvements, recurring revenue base, successful integration of acquisitions, and growth prospects in a resilient water industry sector