Water treatment company De.mem (ASX: DEM) has surprised its shareholders and market analysts by announcing a better than expected revenue forecast for 2018.
In an official regulatory filing, the company said it expects to generate between $8-$10 million compared to $2.9 million generated in 2018, representing an increase of 245%.
The forecast had a significant impact on De.mem shares, which rose as high as $0.27 per share in this morning’s trading session, representing a gain of 35%.
Just last week, De.mem secured new purchase orders from two customers worth an additional $340,000 to its balance sheet, which were said to “illustrate the growing market visibility in both Australia and Asia,” at the time.
De.mem was hired by the El Questro Wilderness Park in Queensland, Australia to deliver a containerised water treatment plant for it facilities.
In another deal, Bechtel Australia added to its existing deal with De.mem by ordering additional equipment and spare parts. Last but not least, Singaporean company Aromatec ordered a “membrane-based water treatment system.”
With the volume of purchase orders growing and new business being added on a regular basis, De.mem thinks it can outperform its own expectations and potentially achieve operating cash flow breakeven in the near term.
Onwards and upwards in water treatment
De.mem is also assessing “earnings accretive opportunities” to accelerate its growth with a number of additional organic growth and acquisition-focused growth initiatives under consideration.
Currently, De.mem operates in the industrial segment providing systems and solutions to the mining, electronics, chemicals, oil & gas and food industries.
The basis for its forecast comes from existing long-term contracts, but also, “additional project awards likely to received during 2018 in Australia and Asia,” according to De.mem. The company said that its ‘Build, Own, Operate’ (BOO) unit alone would generate somewhere in the region of $3 million this year.
Additionally, De.mem’s acquisition of Akwa-Worx in September last year is expected to be a contributing factor and will provide a full year revenue contribution.
“Since our IPO in April 2017, De.mem has continued its rapid expansion with important growth milestones achieved. These include the entry into the highly lucrative Australian market through the acquisition of Akwa-Worx on 18 September 2017, the commencement of our membrane manufacturing plant in Singapore on 12 July 2017, the successful completion of pilot trials on our new nanofiltration membrane in February 2018, and the recent in-licensing of the Forward Osmosis technology for certain industrial wastewater treatment applications,” said Andreas Kroell, CEO of De.mem.
Having started the year with a cash balance of A$3.3 million, De.mem says it is “sufficiently funded” to execute on its current growth objectives and carry out its prioritised organic growth strategy.
“De.mem is well funded with a healthy cash balance, and together with a reduced cash burn and a growing revenue base, we are strongly positioned to become cash flow positive in the near term. The Board continues to assess growth opportunities in the water and wastewater technology sector, a space which is still highly fragmented and has considerable scope for consolidation. While organic growth is a priority, we will also assess opportunistic acquisitions that make an immediate contribution to earnings,” said Mr Kroell.