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#ASX Announcement 8/2/21
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Added 3 years ago

SciDev delivers inaugural net profit of A$0.4m

1HFY21 Financial Highlights

~(1HFY20 -A$0.2m)

~ Record half year results;

       ~ sales of A$18.3m (+300% vs 1HFY20  A$6.1m)

       ~ cash receipts from customers of A$15.8m (+290% vs 1HFY20 A$3.8m)

~ Net cash at the end of the period of A$7.1m

~ Strong gross profit margin of 23% (FY20 17%)

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#History
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Added 2 years ago

History

Scidev first appeared on my radar over 2 years ago when Harley Grosser from Capital H Management wrote about it and other competitors. 

At the time Scidev was solely focused on separating solids from liquids. Since then, they’ve made a strategic acquisition in Highland Fluid Technology which allows the separation of liquid chemicals in water. Both of these verticals offer massive opportunities. 


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#RecentEvents
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Added 2 years ago

Recent Events

At first glance, the vast majority of investors likely dismiss this company completely under the assumption that it would be capital heavy and likely growing in lumpy chops when contracts are won. These things aren’t untrue, but what is missed is that a significant chunk (~70%) of their revenue is recurring. As an example, mines will need a continuous monthly supply of their OptiFlox technology to separate minerals from ore, a process which requires enormous amounts of water.

The events that unfolded in the past 6 months saw the stock fall from 0.95 to 0.45, losing nearly 60% of its value. Less look into what happened:

  1. The company announced last year some trials with very large clients (namely Canadian Oil Sands) that would have resulted in significant opportunities. The company was quiet for months about these, and with the lack of news, investors starting selling off the stock thinking these deals were lost. The company never provided any updates on these, the assumption is that these deals have been lost. One could read a warning signal here, but we may also accept that even businesses with excellent solutions cannot win all opportunities. 
  2. With sentiment already on the decline, the company released weak Q1 results in October. Sales were down 30%. But wait, shouldn’t this and the above point be read as signals of a business under structural decline? My opinion doesn’t align with this. Indeed, during the harsh COVID lockdowns of Q1, travel restrictions made it impossible for them to access sites for one off-projects, 95% of their revenue were generated from ongoing recurring contracts. This business is also in verticals with very long sales cycle, not all quarters will be steady upside. 
  3. This sent the stock in a further downward spiral. 
  4. With a weak share price, this provided an attractive entry point for raising capital to bulk up the inventory to fund their growing pipeline of opportunities. The raise was to allow them for more vertical integration to reduce their supply chain risk. However, it appears to me that this raise was poorly handled, the communication wasn’t clear enough and a lot of investors missed the strong fundamental reasons why the raise was happening. 
  5. In recent H1 reporting, results were positive: 32% uplift of last year’s H1 revenue. Cash receipts up 40%. However their weak Q1 results in a slimmer profit from H1 and with all the recent market turmoil, it appears most investors are missing the broader context. 
  6. The current market is one that’s orientating more to value of profit, but the above resulted in Scidev being sold-off as a perceived early stage cash burning growth stock, which it is not. 


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#Bull Case
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Added 2 years ago

Why be bullish?

The same thesis of 2 years ago remains intact: 

  • A massive Total Addressable Market that’s under growing ESG pressures and will need to increase their use of these products.
  • Revenue growing in the environment of 30%
  • Profitable company 
  • Valuation of <2X ARR 
  • Seasonality tends the favour H2 
  • Whilst the downtrend is happening, the institutional investors that like this stock are accumulating: Perennial bought more in November, and AustralianSuper just a few weeks ago.


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#Business Model/Strategy
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Added one year ago

Widespread contamination of surface water and groundwater due to industrial releases of PFAS or use of PFAS-containing firefighting foams is now a major problem in the United States and globally. An estimated 200 million U.S. residents, nearly two-thirds of the U.S. population, receive municipally provided drinking water that is contaminated with PFAS


Quite staggering!

$350k per site (I think)..... $10bn TAM.... that's a lot of real estate to cover

But can they execute?


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Valuation of $1.000
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Added 3 years ago
A really nice business led by a young and talented CEO. Excellent growth prospects. Should convert opportunities with FMG, BHP and Canadian oil sands. PFAS opportunity is also significant. Should be able to grow revenue to $100m in coming years which should translate to NPAT of ~$15m. On a multiple of 15x and a discount rate of 10%, this gives me an intrinsic value of $158m or $1 per share.
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Valuation of $1.210
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Added 4 years ago
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Valuation of $0.950
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Added 4 years ago
Great product - extremely good management (thus far) its now time to turn potential into contract revenue.
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