Originally Posted by
dela47
I am trying to get my head around the market reaction in light of this proposed transaction and the current valuation.
We've seen a company that has fairly consistently been valued around the 70 - 80 cent mark continue to progress as planned with promising news flow (albeit not Chinese contracts), including obtaining EPA certification and forming strong partnerships in China. We have no indication that certification in China won't be obtained and not once have we seen this technology not deliver on its promises in any of its deployments or demonstration plants. EMC haven't yet gained traction via secured revenue in the Chinese market (and presumably the market is waiting for this as a seal of approval on the technology and proficiency of EMC) but the progress they have made has been very impressive. Either way, I feel confident that the tech and management of EMC are good enough to secure reasonable revenue in China and other markets, so we will just have to watch that play out. So a SP of 85 cents for EMC would seem an acceptable one, pre transaction.
But then we add in the likely addition of RWL to the EMC business. Successful sales infrastructure and networks, complementary products, added expertise (particularly in offering containerized one stop shop solutions), very strong management (including ex GE CTO amongst others), and a business that is growing at over 30 percent p.a. and has forecast 90 mil US revenue for 17 (of which 70 percent is booked). Not to mention the backing of Lauder and an extremely sophisticated board that helped make the decision to merge with EMC (i.e. they back EMC and its tech/management).
RWL is coming across debt free, for a price of around 85 million (I.e. bloody cheap!) and will generate a combined, revenue generating unit with a full water system offering and access to a number of markets. It's in one of the hottest industries of our future (water), and they are placing themselves not only in a multi billion dollar market (both the China rural development plan and wastewater in general) but also in a market where there isnt a huge deal of agile competition with an international reach - in terms of the 5 - 50m contract market.
I appreciate there is still uncertainty around this transaction, who RWL is, and even EMC in general as to whether it can deliver. But surely, when you consider the basic multiples of revenue that should be at play, the growth potential of the two companies and the offering that it provides investors in the highly sought after water industry, this has to be an undervaluation at current prices? Perhaps instos are still waiting for assurance around the deal and a first contract in China…but to me it seems like very good buying atm. Interested to hear other views as to why this might be a fair price...