Friday, April 21, 2006
Basin Water (BWTR) IPO
Story: Basin Water provides turn-key (or near so) ground water purification systems for cleaning up contaminated wells or otherwise getting a water supply to a desired contaminant level. They use ion-exchange resins, a well established technology. Old industry = lots of competition and commodity prices. My main question - what is there to possibly be excited about over water purification. Desalination, maybe, but trace impurity removal? Boring. But then again, these guys are bothering to try and come public, so maybe they have something. Or maybe not.
They claim a bunch of patent protections for removal of key trendy contaminants - arsenic (well, that one's not trendy), nitrate, perchlorate, chromium VI, and uranium. I have not read their patents, but there is no way they can be broad enough for industry dominance, as this is very standard chemistry and chemical engineering. So the patents are likely for some specific feature that could be worked around by a competitor. The patents are not their moat. On the other hand, their modular system design approach and easy servicing sounds like a good product, so I'm betting that design and execution are their real moats, and with that, pricing. Let's see what the market says.
Company: Hmmmm. I'm getting sort of interested, until I hit page 2 of their prospectus, where they show FY 2005 $12.2M revenue and $0.6M net income, versus $4.3M revenue and -$0.6M net income for 2004. So far, tiny, but good, especially when they indicate that they closed 2005 with a $77.0M revenue backlog. Looks like they just got profitable and are ramping up quickly, but then, this: they closed 2004 with a $35.0M revenue backlog.
Now wait a minute. They talk about how, after water testing, they can set up their systems in a matter of days to weeks. They started 2005 with $35M in orders, but over the course of the entire year they only realized $12M in revenue? Where did the other 2/3's of the orders go? Later (page 10) they make it clear that their contracts have a typical life of 5 years or more, so of that $77M backlog, only ca. $49M ($77M-$35Mx4/5) of it is new, and they may only see $10M ($49Mx1/5) in 2006. The problem now is that there is no possible way that I can make any reliable projections about their prospects that make them seem compelling, and they are currently too small to be of interest (they could easily be squashed by a bigger player, although they aspire to be the biggest).
Unrateable.
Pass.
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7:21 AM
Comments:
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They do have some partnerships with fairly large water engineering companies. The ion's that they are filtering out, are very typical of polluted industrial sites.
Their filtering units can be used to salvage well water from other wise useless wells. Rather immature company, but the underlying business model is sound. The IPO is too small to attract much interest.
Their filtering units can be used to salvage well water from other wise useless wells. Rather immature company, but the underlying business model is sound. The IPO is too small to attract much interest.
The single partnership they have is with an engineering firm who's sole desire is to enter the municipal water marketplace. Once accomplished, they become a competitor to Basin, a significant one at that.
There's no new science to the system they have designed/patented, only the staging of the process. There could easily be challenges to their intellectual positions based on systems from the sugar industry. Ion exchange is a fantastic process, unfortunatley though a broadly available commodity.
The company will live or die on building its service infrastructure as these systems are glued together and will require a high level of maintenance over the course of their 5 to 10 year service agreements.
I think you are right in concluding that the company is immature, but with a sound business model. Won't attract much but retail attention in the market, save for providing the CEO and spouse their 'out' of the business.
There's no new science to the system they have designed/patented, only the staging of the process. There could easily be challenges to their intellectual positions based on systems from the sugar industry. Ion exchange is a fantastic process, unfortunatley though a broadly available commodity.
The company will live or die on building its service infrastructure as these systems are glued together and will require a high level of maintenance over the course of their 5 to 10 year service agreements.
I think you are right in concluding that the company is immature, but with a sound business model. Won't attract much but retail attention in the market, save for providing the CEO and spouse their 'out' of the business.
I think ultimately the Shaw Group wants wants to be a contractor. While building an ion-exchange reactor isn't a hard thing, the smaller water utilities using these systems want a plug and play scalable solution.
Ultimatly, Having Shaw or anyone else build custom systems is less desirable than having BWTR install a big box with touchscreen.
Also they have a partnership with Aqua America, which is somewhat of a fall back plan. Going Forward's R&D costs and COGS will be lower.
I also see a profit stream from Pay-as-you go billing, finance brokering, and long term service contracts.
If I was CFO I would be working on building a relation ship with a specialty leasing company, so as to have attractive customer financing in place, and earn an extra 0.25% in brokerage fees.
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Ultimatly, Having Shaw or anyone else build custom systems is less desirable than having BWTR install a big box with touchscreen.
Also they have a partnership with Aqua America, which is somewhat of a fall back plan. Going Forward's R&D costs and COGS will be lower.
I also see a profit stream from Pay-as-you go billing, finance brokering, and long term service contracts.
If I was CFO I would be working on building a relation ship with a specialty leasing company, so as to have attractive customer financing in place, and earn an extra 0.25% in brokerage fees.
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