Yahoo Finance
Filing
July 16, 2018
Q3 2018 Data
Price: $1.28, Shares: 40m. Cap: $51m
1.Basic Information
(1) History
This is a Quebec company started in the 1990's. Originally it was called Hebron Fjord Resources which is a junior mining company. Guy Goulet(CEO at that time) and Frédéric Dugré(Current CEO) seems to be among the original owner. At 2000, it changed its name to H2O Innovations and started to invest in water treatment technologies. It IPO'ed 2001 at $0.50. The symbol is HOI and later changed to HEO at around 2015. It had a revenue of around $4m level at that time and with quite big losses every year. The revenue was down until 2007 it returns $7m level but still losing money. At 2008, Frédéric Dugré took over as CEO. Revenue increased to $10m but still in loss. In 2009, revenue tripled to $31m and cash positive. However, in 2010, revenue was down again and didn't recover until 2014. There was a big write off of $10m+ in goodwill and intangibles during this period. The company achieved EBITDA positive since 2013. Revenue grew to $50m at 2015 and 2016 and to $80m at 2017. Revenue of 2018 expected to be close to $100m.
Originally the company was only doing the water treatment business. Lately, from 2009 to 2013, it added the maple syrup equipment business. At 2016, it added operation and maintenance business for wastewater facilities. Now all three business accounts 1/3 of revenue for each.
(2) Business-related.
Water treatment: This is its old business. Most are project based which makes revenue fluctuating. Now it only accounts for 1/3 of its revenue. It seems a tough business and the company barely made any money from this business.
Maple syrup equipment: This business is more predictable and seems growing very well.
Operation and maintenance for water facilities: This is mainly a service. It is more ideal for its revenue is very consistent and it is capital light. However, currently, I don't know what is the margin like.
(3) Management.
Frédéric Dugré: He is the original SVP of the company since the beginning. Took over CEO role since 2008. During his time, the company did better in terms of reduced losses. Also, the company grew revenue from $30m level to $100m level currently. However, during his time, the company still incur losses. Also, issue shares quite loosely.
(4) Debt and Credit Facility.
Currently, there is $11m debt outstanding. The interest rate is around 5% to 6%. Cash is around $5m.
(5) Insider holding, options, Insider trading info, share buyback.
(6) Employee numbers
(7) Industry comparison.
(8) Major events
2. Financial data.
3. Valuation
(1) Current the company is just cash positive. It is not really cheap from profit aspect. However, It might be able to generate $5m/year cash in the future if it can improve profitability. Also, it might be able to continue growing its revenue.
(2) The CEO, CFO, COO holds 2.5m shares of options at a price of over $1.65 which is a good incentive for them to do well.
(3) Currently, the company is making a small profit or close to making a profit. The book value is also close to share price. It decreases the risk.
4. Risk
(1) The company never made any big profit and it might not make money even though the revenue is much higher.
(2) The management tends to issue shares very loosely and it might keep doing that.
(3) There are quite a lot wrote down of goodwill and intangibles during the past. Those acquisitions the company made seems not very good.
5. Conclusion
The company wasn't managed very well. However, the current price is acceptable as long as it can maintain cash positive.
6.Links
