Fluence Corporation Limited

FLC Details

Win of Contract: Fluence Corporation Limited (ASX: FLC) is a leading player in the decentralised water, wastewater, and reuse treatment markets. It has a global footprint with operations in China, the Middle East, Southeast Asia, and North America. As per a recent update, the company has announced that it has secured an US$8.5 million contract from the Cambodian Government’s Ministry of Land Management, Urban Planning and Construction. Under the agreement, FLC will build a third SUBRE plant using MABR technology in Sihanoukville, Cambodia and will comprise of 90 three-tier MABR stacks, each consisting of three MABR spirals in a tower configuration. The plant will treat wastewater for a population of 160,000.

H1FY21 Performance Update:

• The company reported revenues of US$39.7 million in H1FY21, compared to revenue of US$53.7 million in H1FY20. The drop was primarily due to the delivery of an engineering package to a client in Ivory Coast in Q1FY20. However, revenues from China were up by ~45% in H1FY21, when compared to H1FY20.
• SPS revenue grew by ~12% on pcp to US$10.4 million in H1FY21.
• There was also an improvement in the Ivory Coast SG&A expenses by ~9% in H1FY21, when compared to the pcp.
• It ended the period with a cash position of US$23.7 million, along with ~US$35 million in short and long-term liquid investments.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company has operations across the globe and thus is prone to the risk of foreign currency fluctuations.

Outlook: The company expects stronger revenues from the Ivory Coast project in H2FY21, as construction commenced in H1FY21. FLC has ~US$175 million of contracted backlog of which SPS backlog comprises of ~US$18.7 million. It has also reiterated 2021 guidance to be an EBITDA positive year, and SPS revenues to be ~US$35- 50 million.  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of FLC is trading below its average 52-weeks' levels of $0.160-$0.330. The stock of FLC gave a negative return of ~7.49% in the past one year and a negative return of ~2.63% in the past one month. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers’ average EV/Sales multiple, considering the increase in debt-to-equity ratio, foreign currency volatility, and decrease in gross margin. For the purpose of valuation, peers such as Scidev Ltd (ASX: SDV), Monadelphous Group Ltd (ASX: MND), CIMIC Group Ltd (ASX: CIM) and others have been considered. Considering the current trading levels, indicative upside in valuation, growth in revenues from China, prudent expense measures, optimistic outlook, and the other key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.18, down by ~2.703% as of 21 October 2021

FLC Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.