Industrial Alliance Securities analyst says the long-term growth outlook for H 2 O Innovation Inc. (TSXV:HEO) remains strong
Capital Ideas Media | December 11, 2020 | SmallCapPower: Water is considered to be the source of all life and according to a 2019 report from the United Nations World Water Development, global water demand will increase by 20% to 30% by 2050. As well, aging water infrastructure will require world-wide investments of US$9.1 trillion by 2030, increasing to up to $22.6 trillion by 2050.
(Originally published on Capital Ideas Media on October 13, 2020)
H 2 O Innovation Inc. (TSXV:HEO) is a Quebec-based provider of water treatment solutions based on membrane filtration technology for municipal, industrial, energy and natural resource customers, with 750 systems installed in North America.
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The Company services can be categorized into three components: water technologies and services; specialty products, including a line of specialty chemicals, consumables and specialized products for the water treatment industry; and operation and maintenance services for water and wastewater treatment systems.
HEO recently reported record Q4 2020 financial results, in which revenue rose 13% year over year to $36.0 million, while swinging to a profit of $0.8 million from a net loss of $1.2 million a year earlier.
These results exceeded the expectations of Industrial Alliance Securities analyst Naji Baydoun, who raised his rating on the stock to “Buy” from “Speculative Buy,” and believes “the best is yet to come” for this Company.
“The long-term growth outlook for HEO remains strong, and we continue to forecast high single-digit average annual revenue and adjusted funds from operations per share growth through fiscal 2025, driven by (1) HEO’s more than $125-million order backlog, (2) recently completed acquisitions (Genesys and GUS), and (3) an improving profitability profile,” he said.
Mr. Baydoun added that H 2 O Innovation’s management has taken several strategic steps that have “meaningfully” transformed the Company’s business profile, including: increasing recurring revenues (now greater than 80%); accelerating growth and; substantially improving profitability (more than $10 million in annual EBITDA, in addition to 9% to 10% Adjusted EBITDA margins).
“In our view, HEO is well-positioned to continue capitalizing on growth opportunities in the water infrastructure sector; the Company’s healthy balance sheet should allow HEO to continue pursuing M&A opportunities, which could further improve the outlook. We see further near-term upside in the shares as the Company continues to execute on its growth strategy,” the Industrial Alliance Securities analyst wrote.
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