Three Overlooked Small Cap Water Technology Stocks

Posted on Nov 24, 2015


Water may not be viewed as a sexy commodity by most investors, but small cap water technology stocks Consolidated Water Co. Ltd (NASDAQ: CWCO), Tetra Tech, Inc (NASDAQ: TTEK) and Cardinal Resources Inc (OTCBB: CDNL) help bring supply water to consumers in places that often lack fresh or safe water supplies. Here is what you need to know about all three small cap water technology stocks:

Consolidated Water Co. Ltd. Headquartered in the Cayman Islands, small cap Consolidated Water Co develops and operates seawater desalination plants and water distribution systems in areas of the world where naturally occurring supplies of potable water are scarce or nonexistent. The company was founded in 1973 as a private water utility in Grand Cayman. Today, the company operates water production and/or distribution facilities in the Cayman Islands, Belize, the British Virgin Islands, The Commonwealth of The Bahamas and Bali (Indonesia). Consolidated Water Co looks for places where the supply of portable water is scarce where there are the following (among other characteristics):

  • Little to no naturally occurring fresh water.
  • Growing population.
  • High tourism levels.

Earlier this month, Consolidated Water Co reported that total third quarter revenues declined by approximately 14% to $ 14.6 million attributable to lower revenues in all three of the company’s business segments while net income attributable to the stockholders totaled $ 1,775,500 compared with $ 1,882,692. The CEO stated:

“The improvement to income from operations in the most recent quarter was due to a reduction in general and administrative expenses related to our development project in Mexico. However, net income declined slightly, from approximately $ 1.9 million in the third quarter of 2014 to $ 1.8 million in the third quarter of 2015, due to a $ 225,000 non-cash impairment charge in the 2015 quarter against our investment in OC-BVI, as well as higher foreign currency losses for our Bali, Indonesia operations. I am pleased to report that negotiations between the Company and the Cayman Islands Regulator for our new water utility license recommenced in earnest this past quarter. Earlier this year, our existing license was extended through December 31, 2015 to facilitate negotiations for the new license. We are encouraged by the present tone and the constructiveness of these renewed negotiations. I am also very pleased to announce that our 100 million gallon-per-day desalination plant project in Baja California, Mexico reached two very important milestones within the past several months.”

The Director General of the Baja California State Water Commission has issued a letter saying the project should proceed and the required public tender should be called while on Friday, November 6, 2015, the State of Baja California officially commenced the tender for the Project and has set March 23, 2016 as the tender submission date. Consolidated Water Co also has a trailing P/E of 25.72 and a forward P/E of 19.08 along with a forward dividend of $ 0.30 for a 2.53% dividend yield according to Yahoo! Finance statistics. On Monday, small cap Consolidated Water Co fell 0.17% to $ 11.83 (CWCO has a 52 week trading range of $ 8.41 to $ 13.75 a share) for a market cap of $ 174.80 million plus shares are up 10.8% since the start of the year and up 25.2%over the past five years.

Tetra Tech, Inc. A leading provider of consulting, engineering, program management, construction management and technical services, small cap Tetra Tech supports commercial and government clients focused on water, environment, infrastructure, resource management and energy. In the water space, Tetra Tech has been ranked number one in Water by Engineering News-Record magazine for 12 years in a row as the company helps provide access to safe, abundant water supplies; effective treatment of stormwater and wastewater; flood control and restoration tools; and innovative watershed protection approaches to assess, protect and restore water bodies. The company would be involved in all phases of the water cycle, combining state-of-the-art techniques and demonstrated best practices. Two weeks ago, Tetra Tech reported fiscal 2015 revenue and net revenue of $ 2.3 billion and $ 1.72 billion, respectively, as revenue and net revenue for fiscal 2015 decreased 5% and 4% (excluding the impact from foreign currency translation), respectively, due in large part to the wind-down of the Remediation and Construction Management (RCM) business. Net income was $ 39.074 million compared to $ 108.266 million. The Chairman/CEO stated:

“We had a solid fourth quarter, generating a 13% EBITDA margin from ongoing operations and strong cash flow from operations. Our successful business model has enabled us to pay a dividend, repurchase shares and invest in the Company’s growth, both organically and through acquisitions. We announced our intent to acquire Coffey, a world-class consulting and engineering firm with 3,300 staff worldwide, including offices across Australia, Asia Pacific, the UK and the U.S., to support our strategy to access new geographic markets and expand our leadership position with clients. Together with Coffey we will be the global leader in international development. Coffey will also provide us a platform to provide water and environmental services to support Australia’s infrastructure expansion. The continued performance of our ongoing operations combined with the Coffey acquisition provides Tetra Tech a solid foundation with additional growth opportunities for fiscal 2016.”

The acquisition of Coffey International Limited (ASX:COF) was announced back in October with the Chairman/CEO stating:

“Coffey provides a platform for growth of our international development business with multinational aid agencies. In addition to Coffey’s expertise in geoservices and project management, the combined company will also provide water and environmental services to support Australia’s infrastructure expansion.”

Tetra Tech has a forward P/E of 42.27 and a much lower forward P/E of 13.20 along with a forward dividend of $ 0.32 for a 1.18% dividend yield according to Yahoo! Finance statistics. On Monday, small cap Tetra Tech fell 0.41% to $ 27.05 (TTEK has a 52 week trading range of $ 22.98 to $ 27.74 a share) for a market cap of $ 1.64 billion plus shares are up 1.3% since the start of the year and up 18.2% over the past five years.

Cardinal Resources Inc. Small cap Cardinal Resources is focused on developing its patented Red Bird System, a solar-powered community-sized drinking water system, and the Grey Bird Approach to wastewater treatment and green infrastructure as well as on providing a deep range of traditional environmental and engineering services. More specifically, the company’s Mobile Red Bird System is housed in a rugged trailer that can be towed with a standard 1-ton pickup truck and is designed for both ready transport and rapid deployment in situations where potable water is needed from different sources in multiple locations. The system also comes with a solar array that is installed on top of the unit with minimal set-up time and can produce tens of thousands of gallons of clean water daily from any fresh water (non-saline) source at a fraction of a cent per gallon.

In mid October, Cardinal Resources announced it had signed a non-binding Letter of Intent with an Asian consortium for an equity investment and an Asian Distribution Joint Venture with a China-based consortium to be formed to market and commercialize the company’s water treatment technologies in Asia and other international markets. The investment, if closed, will consist of two tranches which combined would total between $ 6-12 million for a 51% stake in the company with proceeds from the transaction being designated toward general working capital, retiring the company’s existing debt and establishing the new joint venture. Back in June, Cardinal Resources announced that it had completed a series of meetings with government officials in Panama to open the massive Latin American market for its Red Bird water systems. Beyond that first system, discussions centered on terms and sites for a comprehensive initiative that envisions the sale of five Red Bird systems, per month, to be rolled out nationwide in 2016. The CEO pointed out:

“We are encouraged by the forward thinking of the senior Panamanian officials we are working with; cautiously optimistic that we will be successful this year in completing a series of transactions starting in Panama and expanding throughout Costa Rica, Nicaragua, Peru, Columbia and the rest of the region that will ultimately involve over 100 of our Red Bird units – and excited to contribute to dramatically improving the lives of hundreds of thousands of people beginning with Panama. The demand is there. Our next-generation, solar-powered technology is state of the art, and with over 500,000 Panamanians without access to affordable clean, pure water, the long term economics of Cardinal’s family of Red Bird water systems are as compelling as is its ease of installation and low maintenance costs. Looking ahead, we estimate the regional addressable market for our family of systems is $ 825 million and growing.”

Last Thursday, Cardinal Resources announced it had completed the start-up of the first Community Red Bird System – 10 in Soloy, Panama, as a demonstration of the capabilities of the company’s Red Bird System for the community and Senior Engineers for the country. In addition and yesterday, Cardinal Resources announced it had completed the first sale of its Mobile Red Bird System in China as the first system of the planned initial order of 3 systems by the HangZhou Sky Valley Water Technology Co – a China-based consortium formed to market and commercialize CDNL’s water treatment technologies in Asia and other international markets. On Monday, small cap Cardinal Resources rose 97.83% to $ 0.0455 for a market cap of $ 5.13 million.

watertechnology – Bing News