Photo: Ontario Power Generation - Adam Beck Complex. Rotated. Resized. Cropped. Licence: https://creativecommons.org/licenses/by-sa/2.0 Source: https://commons.wikimedia.org/w/index.php?curid=2564777
Pure Technologies Ltd. (TSX:PUR), a global player in the maintenance of water and oil and gas pipelines as well as infrastructure such as bridges and structures, has just had a very impressive year and an equally impressive first quarter 2017. And in response, the stock has begun to show some life and has increased over 15% in the last three months.
Here are the reasons why I believe the company and the stock will perform well in the coming years.
Globally, there are the challenges of costly pipeline failures, water loss, and environmental concerns, and there are growing government regulations to address these pipeline infrastructure issues. Pure is thriving due to the following trends: rapidly aging infrastructure, water scarcity, rapidly emerging economies, and increasing government regulations.
The company has worked on increasing its geographic diversity, and this has resulted in strong revenue growth. In fact, in the first quarter of 2017, Pure reported a 16% increase in revenue, reflecting flat revenue in the Americas and a 116% increase in the international business.
The gross margin has also been on the rise and hit 82% compared to 75% in 2016 due to increased efficiencies and an improved sales mix. And cash flows were strong at $4.5 million versus $1.1 million last year.
Going forward, management expects strong performance this year from its water segment and strong performance out of the oil and gas division.
The company currently has $5.7 million in cash on the balance sheet, no debt, and a $10 million undrawn credit facility.
Another company that has exposure to the water theme is Aecon Group Inc. (TSX: ARE). With a dividend yield of 3.26% and a backlog of $4.4 billion as of the end of the first quarter of 2017 (compared to $4.2 billion at the end of 2016 and $3.3 billion at the end of 2015), the company is thriving and has been increasingly involved in water and wastewater projects.
This theme is a secular one that will be around for the long haul, with developing markets focusing on improving access to clean water and more developed countries focusing on improving drinking water, lessening water discharge, and better wastewater treatment.
As a reflection of the confidence that management at Aecon has in the health of the business at this time, we can point to the fact that the dividend was increased in 2016 to 0.50 per share from 0.46 per share, a 9% increase.
In summary, the water industry is one that may just be the next big thing in coming years, as it is a scarce and very valuable resource.
