The recent prelims for water purification expert HaloSource (LON:HALO) were a landmark, according to chief executive Martin Coles.
They revealed the group posted revenues just shy of US$21mln, up around 30% on the year earlier, although the company remained loss-making.
But the fourth quarter, traditionally its strongest, was profitable, and its broker Allenby reckons HaloSource will make its first full-year surplus in 2017.
For Coles it was about delivery. “For the first time the company has hit a set of numbers that have been out there for some time,” he told Proactive Investors.
The company’s technology platforms are cutting edge and give access to drinking and environmental water markets worth US$19bn and $24bn per year respectively by 2020.
The company has three technology platforms, the first is disinfection chemistry that captures the killing power of bromine on an inert synthetic polymer in a cartridge where bacteria and virus are killed and the water cleansed to strict US Environmental Protection Agency standards for drinking water.
The technology effectively eliminates 99.9999% and 99.99% respectively of water-borne bacterial and viral contamination.
The company’s other technology platforms involve adsorption and clarification chemistry in which nano-adsorbants and natural polymers are used to tap the leisure (swimming pools) and industrial waste markets as well as providing the opportunity for further drinking water application with lead, arsenic and fluoride removal.
In each case, the advances developed by HaloSource are significantly cheaper and safer than what’s currently out in the market.
For example, the bromine-based cartridges used to clean water have a higher ‘kill’ ratio than other existing chemistry in a much shorter period and are both safer and around 20% of the cost of boiling.
HaloSource’s bromine-based cartridges, under the company’s Halopure name, are gaining significant traction in countries such as India and China where domestic water supplies are often susceptible to harmful micro-organism contamination.
The company does sell directly to consumers in the markets where it is active, but partners with the key movers and shakers in this space.
For drinking water these include Eureka Forbes in India with, Perfect in China and an, as yet, undisclosed partner in China which is one of the world’s largest vendors of gravity fed purification devices.
Exciting developments include the inclusion of Halo’s technology in a Brita-style pitcher being developed by the Breville-owner Jarden for the South American market.
China could be bigger than its chief market, India, for the disinfectant cartridges, the CEO reckons and the company’s manufacturing capacity is more than sufficient to cope with significant increases in demand as it restricts its focus to producing the chemistry which powers its strategic partners devices.
“We are not out to be the Procter & Gamble of this space but much more like the Intel inside,” Coles explains.
The latest results reveal the group is cashed up with US$13.8mln on the balance sheet, which analysts reckon is more than enough to get the business to profitability. The coffers were topped up to the tune of US$10.5mln (£7mln) following a stock placing at 11p a share last autumn.
Allenby Capital is predicting the company will post underlying earnings (EBITDA) of just over US$1mln on sales of almost US$38mln for 2016.
The broker Liberum is a little less bullish. It sees sales growing to US$27.3mln this year, then US$35.4mln and US$46mln in subsequent years. The latter figure (for 2017) would see HaloSource posting earnings before interest, tax, depreciation and amortisation of US$3.3mln.
It reckons the stock is worth around 40p a share, which is more than double the current price.
Allenby is a little more circumspect. It reckons that, on a trading basis, the stock is “adequately valued”.
However, analyst Ian Jermin points out: “Further upside remains on fundamentals if our forecasts for 2015 and 2016 are exceeded and on speculative grounds, were the company’s technology to be of sufficient interest for an acquirer to make an outright bid.”
Whether it is the potential of a bid, or the longer term story, HaloSource has a commendably strong City following.
It includes Richard Griffiths, the investor and former founder of investment bank Evolution Securities, who has just under 6% of the company.
The biggest shareholder is the Invesco Perpetual fund that used to be run by Neil Woodford, one of the City’s top stock pickers. His new firm Woodford Investment Management is currently sitting on 19.5%.
“Last year saw the conversion of our deal flow into cash flow,” explains Coles. “The companies that created that deal and news flow for us continue to increase the installed base significantly as the global market continues to expand rapidly with penetration rates, even in the most developed markets for gravity devices at less than 10%.
“So, what I’m saying is there is a lot going on below the surface which will translate to sustained growth across our P&L.”