Q4 2008 Earnings Call

February 17, 2009 12:00 pm ET

Basin Water going down the drain - StockLemon. Citron Research ("The New Face of StockLemon") thinks Basin Water (BWTR) is on its way to zero, similar to the previous Western Water. It notes Basin's admission that it could not make money due to 'poorly priced contracts," and says its customers are fabricated. Insiders including former CEO Peter Jensen and current chairman Scott Katzman have sold massive amounts of stock since Q2 2007.

Basin Water Inc (BWTR)

Q4 2007 Earnings Call

March 17, 2008 4:30 p.m. ET

I recently began adding Companhia de Saneamento Basico ADR (SBS) and Basin Water, Inc. (BWTR) to my portfolio over the last several days, buying small lots on dips. I must give credit for the inspiration to Dr. Brett when he made this post (albeit a bit dated) on TraderFeed (one of the best blogs, and authors, on the web).

SBS provides basic water and sewage services to customers in Sao Paulo, Brazil. They treat, process, and distribute water, and collect, treat, and reuse sewage. I like a lot of firms from Brazil, or others that work in Brazil, namely due to their increased use of ethenal and the consequential development from a better economy and infrastructure.

Basin Water and its many competitors have the law on their side. The Environmental Protection Agency and state authorities have established maximum contaminant levels, or MCLs, to meet safety standards. Responsible drinking doesn’t include arsenic, nitrate and perchlorate, found more and more in underground aquifers as the U.S. population and industries grow.

“Water, taken in moderation, cannot hurt anybody” – Mark Twain

Our latest ChangeWave Alliance water survey served up such a reservoir of positive data on the industry that we’ve written two reports on the findings.

The company -- which designs, manufactures, and installs ion exchange systems to purify underground water -- ended the quarter with a strong balance sheet, holding a cash balance of over $50 million with current liabilities less than $7 million. Putting some of its cash stash to use, Basin Water also announced a $10 million stock repurchase program in conjunction with its quarterly results. Management is confident in the company’s future growth potential, and the stock is now trading almost $10 lower than its debut price of one year ago.

The company is worthy of consideration by patient investors with an eye for out-of-favor, micro-cap stocks with excellent future growth opportunities. Clean water is becoming an increasingly precious and valuable commodity in this country and throughout the world, which provides Basin Water with plenty of future growth opportunities as it seeks to expand nationwide from its current operations in the western states. With a market cap of about $135 million, a decline of over 60% since its IPO one year ago, a low float of just over 14 million shares, and a high short interest of just under 3.5 million shares; the stock has all the ingredients for a quick move to the upside if it can execute on its plan to achieve profitable, top line growth in the second half of this year and beyond.

In the Senate, the majority is resting on the shoulders of a man currently in physical and speech therapy. I hope the Democrats are not counting on Senator Johnson for any filibuster tactics!

One of the most unusual idiosyncrasies about this group of companies is that five out of the twelve are over 100 years old. The list below shows the stock name, symbol, yield, and the primary states that they serve.

BIW Ltd (BIW) 4.3% [Connecticut]

Below is our updated table listing each water utility that we track, the consensus EPS for 3Q 2006 earnings (where available from Yahoo Finance), the year ago operating/continuing EPS actually reported, if available, and the actual 3Q 2006 operating EPS:

Below is our updated table listing each water utility that we track, the consensus EPS for 3Q 2006 earnings (where available from Yahoo Finance), the year ago operating/continuing EPS actually reported, if available, and when the EPS reports start to come in, the actual 3Q 2006 operating EPS.

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.

TWST: Looking from the top down, what is it about the water space that is interesting at this point?

I added here yesterday at $10-$10 1/2. (Edit: the stock closed in the $9's so added a bit early)

Yep, there are risks with any young small company going forward. But BWTR will grow revenues 200% in '06 I believe, and will earn in the 25 cent per share ballpark. McCann was quoted as saying this sort of anticipated growth was 'pie in the sky'. Not really, as BWTR will have two revenue generating deals in their pocket for full year '06 that they've not had previously. I suspect '07 earnings could easily be 40-50 cents a share.

On May 6th, Bill Simpson wrote an analysis of Basin Water (BWTR). The company's shares priced at $12 a share on May 11th, the high end of the range which was increased from the original $8-10 range prior to the IPO. The shares gained 40% up to $16.65 on their first day of trading, and are currently trading at $15. The text of Mr. Simpson's original writeup follows.

BWTR, Basin Water plans on offering 5 million shares at a range of $8-$10. Janney Montgomery is lead managing the offering, A.G. Edwards co-managing. Post-offering BWTR will have 17.7 million shares outstanding for a market cap mid-range of $159 million. Approximately 1/3 of the IPO proceeds will be going to fund capital expenditures, 1/3 to repay debt, and 1/3 for general corporate purposes. President and CEO Peter L. Jensen will own 16% of BWTR post-IPO. Mr. Jensen is not selling any stock on the offering, nor will any insiders.

Tiny water treatment company Basin Water (BWTR) initially planned for 5.0 million share IPO at $8-$10 a share. But demand for shares was so great that the company upped the IPO by 20% to 6.0 million shares and raised the price $12 a share. Shares are currently trading on the NASDAQ for $16.

Next up on the water IPO calendar is Mueller Water Products (proposed: MWA) [see SEC Form S-1], which makes fire hydrants, water pipes, and valves. Mueller is currently part of Walter Industries (WLT), which is a classic diversified smokestack conglomerate. Walter Industries’ core business are mining coal, building single family homes, and making products from iron and steel.

Story: Basin Water provides turn-key (or near so) ground water purification systems for cleaning up contaminated wells or otherwise getting a water supply to a desired contaminant level. They use ion-exchange resins, a well established technology. Old industry = lots of competition and commodity prices. My main question - what is there to possibly be excited about over water purification. Desalination, maybe, but trace impurity removal? Boring. But then again, these guys are bothering to try and come public, so maybe they have something. Or maybe not.