Fluence Corporation — China Contract catalyst?

Fluence Corporation — China Contract catalyst?

Fluence has secured a deal for its Aspiral product in China that should generate at least US$45m in revenue over the next three years. This deal is significant as, aside from the financial benefit, it demonstrates the size of the opportunity for Aspiral in China. Greater investor confidence in Fluence’s prospects here could drive a sharp re-rating of the shares, in our view. We make no changes to numbers now but will review estimates after the Q3 trading statement.

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Fluence

China Contract catalyst?

Contract win

Industrials

15 October 2018

Price

A$0.44

Market cap

A$191m

Net debt (US$m) at 31 December 2018

38

Shares in issue

435m

Free float

60%

Code

FLC

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

Business description

Fluence is a global supplier of water and wastewater treatment solutions. Its decentralised products provide municipal customers with ‘plug and play’ solutions that are both quicker to deploy and substantially cheaper than traditional alternatives.

Analysts

Dan Gardiner

+44 (0)20 3077 5700

Dario Carradori

+44 (0)20 3077 5700

Fluence Corporation is a research client of Edison Investment Research Limited

Fluence has secured a deal for its Aspiral product in China that should generate at least US$45m in revenue over the next three years. This deal is significant as, aside from the financial benefit, it demonstrates the size of the opportunity for Aspiral in China. Greater investor confidence in Fluence’s prospects here could drive a sharp re-rating of the shares, in our view. We make no changes to numbers now but will review estimates after the Q3 trading statement.

Year end

Revenue (US$m)

EBITDA*
(US$m)

EPS*
(US$)

EV/Revenue
(x)

EV/EBITDA
(x)

P/E
(x)

12/17

33.2

(23.6)

(0.07)

2.9

N/A

N/A

12/18

107.0

(13.8)

(0.03)

0.9

N/A

N/A

12/19e

154.0

(2.0)

(0.01)

0.6

N/A

N/A

12/20e

194.4

11.9

0.02

0.5

8.2

14.2

Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, share-based payments

First high volume Aspiral contract

Fluence has announced a deal with ITEST, a provider of engineering services to the highway network in central China, to supply its Aspiral containerised wastewater treatment to highway service stations. The agreement is expected to provide a minimum treatment capacity of 66,000m3/d three years from now, with 80 stations (c 30,000m3/d) being equipped in the first 18 months. Combined with sales of accompanying equipment, the company expects this deal to generate revenues of at least US$45m over three years; we estimate over US$20m of which will be delivered by FY19. This deal is the first high volume sale of Aspiral.

What are the implications?

We see this deal having three significant implications for investors. First, it is a major stamp of credibility for Aspiral and Fluence’s decentralised approach more broadly. Success in China, a highly cost-sensitive market with high wastewater effluent standards (Class 1A), bodes well for its wider prospects. Second, it highlights the huge potential of the China market. In our initiation note, Time for better treatment? we estimated that initiatives to upgrade rural wastewater treatment was a US$4.7bn opportunity and that success here was probably the most significant driver of long-term value for investors. Third and finally, it beats our current estimates pencilled in for Aspiral in China at a stroke. We will review numbers more fully after the Q3 trading statement (due before 31st October), but we would note that the risk to our estimates is on the upside. Given Aspiral is relatively high margin, this deal should give investors increasing confidence that the company can hit its target to reach EBITDA breakeven by the end of FY19. We believe uncertainty here has affected Fluence’s valuation (see our initiation note); increasing confidence in forecasts could drive a sharp re-rating of the shares.

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Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Company name and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Real Estate

Town Centre Securities — FY18 earnings in line and DPS increased

Town Centre Securities (TCS) continued to reposition its portfolio in FY18, seeking to ensure a resilient income stream and unlock future growth potential. Underlying earnings were robust, supported by like-for-like rental growth, a good level of occupancy and further growth in car parking revenues and profits. Refinancing has provided significant additional financial flexibility as TCS continues to invest for future growth, and the DPS was increased 2.2% to 11.75p, representing a yield of 4.7%, while the shares trade at a significant discount to NAV per share of more than 30%.

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