Silicon carbide is one of the strongest materials known to man, just down the list from pure carbon in the form of a diamond. It has extreme heat resistance, thermal conductivity, and chemical inertness. It has been used for decades in industrial cutting tools, heating elements, braking systems, and even military armor indications. One Danish company however, LiqTech International (NYSEMKT:LIQT), has been using this man-made compound since the 90s in high-performance filter applications, specifically in diesel particulate filters, and a variety of liquid filtration indications. They are the only provider of silicon carbide filters in the world.
Founder and CEO Lasse Andreassen created LiqTech in 1999 to meet the growing demand for a resilient diesel particulate filter (DPF). Silicon carbide sets itself apart as a tough alternative to less rugged filter technology (plastics, other ceramics) due to its thermal resistance, high flux, and longevity: Chairman Aldo Petersen estimates as much as 5x the lifetime of other filters. Customers include such giants as Shell (NYSE:RDS.A), Caterpillar (NYSE:CAT) and John Deere (NYSE:DE). While LiqTech's DPFs are becoming more common in newer machinery, most are used in retrofit applications.. Hundreds of buses in New York City and Los Angeles utilize the technology to reduce emissions and the market continues to grow as regulations tighten worldwide. LiqTech estimates its DPFs make up 75% of the retrofit market in the U.S. alone and in the next decade, LiqTech expects the global demand to quadruple from the 6.7M units sold in 2010.
LiqTech also specializes in building liquid filtration products for use in a variety of applications. LiqTech is investigating the market potential of these products in the natural gas and oil industries, particularly in hydraulic fracturing. A hot-button issue in much of the United States, fracking creates large amounts of waste water. The high flux and hydrophilic properties of silicon carbide make it an ideal filter in an industry that relies on efficiency and low cost-of-use. Wrought largely by political forces, the fracking industry does have inherent risks as exploration and expansion continue. The upside in a sector that expects to double over the next three years, however, outweighs concerns. A 2011 Forbes article pegged the global market for water treatment products at $1T by 2020. As potable water scarcity remains an issue, LiqTech has increased development and production of drinking water filtration products, as well as wastewater treatment membranes. Revenues for liquid filters nearly doubled from 2010 to 2011 and LiqTech is actively pursuing opportunities in this market.
Most prescient in the liquid filtration market may be the demand for ballast water filtration systems. When ships travel internationally they carry large amounts of ballast water from one oceanic region to another, where it is expelled on arrival to regulate the ship's buoyancy. Unknowingly, the vessel may carry invasive species (microorganisms, plants) between locales. The International Maritime Organization instituted final regulations earlier this year requiring onboard water management systems (filters) to eliminate the transportation of invasive organisms. LiqTech has agreements to test and implement filter systems with A.P Moller Maersk, and Boll and Kirsch shipping companies potentially worth $300M when regulations take effect. LiqTech pins the potential market for this filter technology at upwards of $50B by 2020 (per LiqTech's corporate presentation).
Revenue has shown consistent growth: $21.2M in 2011, up 35% from 2010. DPF sales make up 81% of revenue for the company, although growth in liquid filtration is expected. LiqTech's 2011 4.7% profit margin increased just slightly from 3% in 2009. The company faced setbacks in 2010 with a net loss of $6k on $15.7M in revenue largely from non-controlled subsidiaries. Profit margins for Q1 are right on track at 5%, and after a March share offering that netted $7.4M, cash reserves are up 600% from the previous quarter. Although trading volume is minimal, with expanding market penetration the company expects international growth and exposure. Last Tuesday CEO Lasse Andreassen bought 537,000 more shares of the company at near-market rate - internal confidence is high.
At the beginning of June, LiqTech announced the addition of Jens Kampmann to its Board of Directors. Kampmann is Denmark's former Minister for the Environment and LiqTech expects his extensive regulatory background to provide insight as markets expand with new international and federal regulations. LiqTech has a global presence with offices in the U.S., Denmark, France, Korea, China, and a new sales office in Singapore. Noteworthy is LiqTech's smallest product line; they build kiln furniture for all types of high-heat applications, from tableware firing to the healthcare industry. The Q1 financial report indicates expansion and development in this relatively new segment of production. Varying product lines utilizing the same high performance material give LiqTech variation in a changing global economy, and with new markets opening up this year the company stands to grow considerably.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LIQT over the next 72 hours.