Global warming and climate change are causing catastrophic damage across large swathes of the world. Indeed, severe droughts, floods and even hurricanes are now commonplace requiring much better water conservation, leak detection and stormwater defences.
This is where Water Intelligence (£69m mrkcap) fits in. Its highly precise leak/blockage detection, drainage and remediation solutions are acoustically powered and, importantly, minimally invasive.
This means even the most difficult-to-reach cracks, holes and obstructions in pipes across all types of diameter can be identified and repaired quickly in order to save water, minimise sewage spills, reduce repair costs, and cut regulatory fines - all in all offering a 'one stop shop' for homes, insurers, swimming pool owners, farmers and utilities.
Today, Water Intelligence is 90% based in the US under its trusted 'American Leak Detection' brand, which itself is 2/3rds franchised, with the other 1/3rd company managed. Elsewhere, WATR also has expansion opportunities in the UK and Australia, with the former offering significant scope to help utilities reduce sewage overflows (eg Lake Windermere) and mains water loss (25% of country's daily consumption) - both areas of considerable focus in the new 5-year AMP8 investment period.
All told, the group generates around $200m of system-wide sales, and is forecast by house broker Dowgate Capital to deliver Dec FY24 revenues, adjusted PBT and EPS of $81.6m, $9.2m and 38.3c respectively - climbing to $93.5m, $11.2m and 44.5c next.
Alongside ending the year with net debt of $6.2m, or $18m including deferred consideration (1.2x EBITDA), whilst equally putting this GARP stock on a highly attractive 12.8x PER, falling to 11.2x in 2025, and equivalent to a 0.8x PEG ratio.
To me, this is far too cheap, especially given sales and EPS are both expected to jump >14% next year, driven both organically (re increase share and NPD) and via acquisition (eg infill franchisees such as $12m Dallas), representing excellent value for a high-repeat revenue, cash-generative and lower-risk business enjoying secular tailwinds.
In fact, I would not be surprised if the stock doubled over the next 3-5 years, with Dowgate Capital similarly having a 850p/share target price.
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