Basin Water: Emerging Player in Water Treatment

Environmentalists, geologists and meteorologists see water everywhere but many worry about where their next "tall, cool one" is coming from. What has the experts upset is the fact the global water usage increased by six times in the past 100 years and could double again by 2050. Water supplies on the other hand have remained the same.

There is also a growing concern over pollution of potable water sources. The United Nations reported three years ago that more than half of humanity will be living with water shortages, depleted fisheries and polluted coastlines within 50 years because of inadequate supplies and pollution.

What better place for investment than where a problem begs for a solution? We recently initiated coverage of Basin Water, Inc. (BWTR). Basin Water is an emerging player in water treatment. Its proprietary ion exchange system is gaining traction among municipalities and other water system owners to remove harmful contaminants from groundwater. Basin Water is getting a boost in market penetration from a distribution agreement with Shaw Environmental, a division of Shaw Group (SGR).

While much of the world's water shortage and water quality problems can be solved with more efficient irrigation, better toilets or pollution controls - i.e. reduce demand - there is still a need for water treatment - i.e. increase supply.

Another element of the investment thesis is the view that the water supply and treatment arena will be a particularly fertile ground for smaller companies like Basin Water. The water business is highly localized and therefore fragmented, making it possible for a smaller company to distinguish itself with a proprietary product and a focused marketing strategy. Of the thirty public companies in our index of water supply and pollution treatment, only eight are over the $1.0 billion market capitalization level.

Basin Water attracted our attention with its patented "Ion Exchange Water Treatment System" for deployment at the wellhead or at a centralized facility. The Company holds three patents covering the system and proprietary processes for arsenic and nitrate removal. Basin Water’s modular Ion Exchange Treatment System has been well received in the market through a strong value proposition that speeds installation, reduces operating costs and improves treatment outcomes.

We believe Basin Water is poised to generate significant revenue and earnings growth over the next four to five years. We have forecast EPS of $0.30 on $42.0 million in sales in 2007, compared to a basically breakeven year on $21.1 million in sales in 2006.

Disclosure: Neither the principal of Crystal Equity Research and Small Cap Copy nor any of associates own beneficial interest in BWTR.

Comments

[Jeter McWater:]

Please. Just how big is the perchlorate market to warrant suchaggrandizement of a one trick pony?? I'd be more interested in hearing why their stock opened somewhere above 16 and now trades at 8 and a half. Someone really got taken to the cleaners with this "water treatment" company.

2006 Sep 25 10:41 PM