BioHiTech Global (OTCPK:BHTG), a microcap I've been tracking from the outside (no position currently), is out with a nice update regarding its product portfolio and potential TAM. For those unfamiliar, BioHiTech is a clean-tech company that "provides data-driven solutions for disposal of food" - or put simply, it provides a "digester" to customers that converts food waste to "grey water". Grey water is a natural waste product that can be transported to waste water treatment facilities via traditional municipal sewer systems rather than by truck. Eliminating the usage of trucks helps lowers operational costs for building owners and helps reduce the ancillary liabilities associated with storage capacity equipment and associated human capital. Summarized, BioHiTech helps fix a meaningful cost at a lower net overhead number. That, of course, matters greatly to the building owner tethered to such costs.
Yes, the business model at BioHiTech is currently that simple. But as simple as BioHiTech's story seems, it's really not that simple. The recent update from the company is a perfect example.
BioHiTech is out with news that it's launching a proof of concept effort - currently at just lab-scale - for a product portfolio addition that will allow BioHiTech's Eco-Safe Digester to "digest, tank, and deliver the grey water from its Eco-Safe Digesters to Anaerobic Digestion (AD) facilities anywhere in the world". That's right, anywhere in the world. But why does this matter? Where's the monetization event?
Well, outside of this effort adding to the overall capacity and product portfolio at the company - if proof of concept milestones can be hit and if BioHiTech can scale this concept up to commercial levels - this effort also expands the total addressable market that can be targeted by the company. BioHiTech's proof of concept efforts, again if ultimately proven successful at commercial scale, would allow it to tank its unit's grey water which would allow for transportation to an anaerobic digestion plant where biogas can be captured and used to create renewable energy. BioHiTech's proof of concept partner, Natural Systems Utilities, has been able to show successful "early trials" (likely single instances at less than lab-scale) in which feeding the material to a digester have been successful. Natural Systems Utilities will leverage its prior data with BioHiTech's intellectual capital and operating prowess in an effort to prove concept at higher scale.
I think it's premature to be anything but optimistic from a speculative standpoint but I'm going to be following these developments very closely. With alternative/renewable energy still a huge focus of government funding efforts and with it now, in light of what's taken place in traditional energy T24M, becoming a major non-traditional capital focus (PE, VC, etc.) I could see BioHiTech and Co. marketing any early proof of concept to funding effort success. Unlike many alternative/renewable energy efforts, what BioHiTech is trying to do, at least with this particular segment, is more of an operating process than an exercise in science. BioHiTech is simply dialing in the efficacy of its digester - BioHiTech will need to leave its digestion process at different stages of being incomplete for this effort to prove concept - rather than inventing or creating additional processes (via operating processes or science). That derisks this effort greatly in my opinion. Still though, if BioHiTech can successfully prove concept it should be able to qualify for process tethered IP (READ: patent protection for the process). That matters from a valuation standpoint when trying to figure out what this vertical could generate longer term. Again, I'll wait to do that until we're further down the development road.
All told I thought the update from BioHiTech was productive. I think it shows that there's more to the story of the company's digester than meets the eye and I think it shows that BioHiTech has target markets that are proactively looking for solutions. That matters. It's one thing to be government mandated into a solution - or a cost uptick for that matter - but it's a completely different story to want to find a solution to a problem from a proactive basis. From my background in consulting I've learned that the easiest way to sell a product is to sell it to a market that's already looking for it (or something like it). It looks like BioHiTech might be on the road to doing just that for a very, very large market.
Good luck everybody.
- BioHiTech is a microcap with shares traded over the counter, where liquidity is often light. Low liquidity is one of the reasons the stock is so cheap. You can buy the stock well below fair value, but that also means you may have a problem selling at fair value, or at all, in the future. Because of the illiquidity in the shares, you should only enter a position if you won't need the money in the near term.
- Secondly, there is competition. The overall sector in which the company operates is competitive, and almost all the competitors in BioHiTech's space are much better funded, have longer track records of operations, and are in a better position to access the credit markets.
- Third, there is execution risk. If management does try to significantly grow the business and increase market share organically by increasing expenses, the plan could suffer setbacks and the company could be forced to raise capital on inferior terms, if it can raise capital at all.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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