Hey Strawfolks,

I am throwing up a contentious bear case for De.mem as a counter argument. I have posted on other social media about De.mem, so I won't cover my full bear thesis here. However, I fundamentally believe that the business model is not viable.

A lot of the bull thesis relies on the market analysis for decentralised and or modular water filtration. In De.mem's case, they have shipping containers that are modular (you scale them up by simply adding more), decentralised (don't need to be linked to a major water or water filtration system), and can be tailored to the specific needs of the client (they can be modified depending on what toxins they wish to filter). The market for improved water quality at water bottling plants, mines, etc all over the world - particularly Asia their main market - is growing. So we can all agree that they are playing in a growing market.

De.mem lease their technology from a Singaporean company, and don't own the IP. While the technology seems good, the business model should be seen as a 'land and expand' model. They need to pay fees for the technology, which they can then use. To my mind, there is no technological moat at De.mem. In fact, as this is an extremely competitive space with lots of competing technologies, I expect that that margins will continue to decline over time as other graphene based water filtration systems come online. You can simply google or go to Alibaba and see the variety of cheap competitive products out there. You'd be surprised.

So for De.mem, it's about how many customers they can get, and what additional value they can achieve by selling multiple products to the same clients. There are some benefits from vertical and horizontal integration that they can accrue via their acquisitions. But they are still a niche player in a small industry. Indeed, despite the acquisitions, they have actually started to burn more cash than previously. In FY22, their revenue was basically flat, EBITDA was down, and losses were bigger. Indeed, their reported 'visibility to profitability' continues to be pushed back, and is now not expected until 2H23 (or FY24 annualised).

An extremely worrying part of their business model has been the cash burn. It was no surprise they needed to do a cap raise in July 2022 at 14c, which put further downward pressure on the stock price. Indeed, it is now trading at a discount to the cap raise of around 7%.

Moreover, the net tangible assets per share (prior to cap raise) declined from 4.2c to 3.1c. This provides no margin of safety. In fact, if they were to be taken over tomorrow, it could be a 'take under' situation as their assets (which have no moat or IP) may be worth less than the current market price.

Just my 3.1c worth, happy to be told otherwise.