Pure Technology: A Niche in Water

03/28/2017 2:50 am EST

Focus: INDUSTRIALS

Vivian Lewis

Editor and Publisher, Global Investing

Canada-based Pure Technologies (Toronto: PUR; OTCMKTS: PPEHF) reported bang-up results for 2016 with a warning about regression to the mean.

PPEHF, which offers inspection systems for water, sewage, oil, and gas pipelines last year had revenues up 10% to C$115.1 million, about 2/3 of which was organic growth and the rest generated by its takeover last April of Wachs Water Services.

Gross margins last year came to 78% of sales up 2 percentage points from prior year levels because of a favorable revenue mix and lower direct project costs.

Adjusted cash-flow (earnings before interest, taxation, depreciation, and amortization) came to $15.1 million, up 14% especially from cost savings with its new water line.

Americas' costs for marketing increased and water business actually fell during the year but the backlog now is up 31% so there should be better WWS sales this year.

It sells both inspection and monitoring services and software to look for leaks. It also has systems for monitoring the stability of bridges.

Cash flow from operations rose 36% to $11.4 million and PPEHF booked $1.3 million in net profits vs. a loss the year before. Pure Technologies closed the year with zero debt, $5.4 million cash, and a $10 million undrawn credit facility. It earned two loony cents per share.

The Q4 results were not as shiny with revenues up overall by 5% although non-North American sales grew 11%. These tend to be large and unpredictable. Direct costs up 27% which brought down gross margins from 81% to 77%, marginally below the full year level.

The bottom line was worse because of higher operating expenses and EBITDA fell because of procurement delays. However, this small cap firm still produced a profit in Q4 up 42% from that in 2015 at $1.77 million or 3 loony cents per share.

In December, PPEHF acquired E-Mac Corrosion to boost its prowess in hydrocarbon pipelines. It has added sales staff to the water side to help.

We bought into Pure for its water business after it became a victim of the fall of Quadaffi who had hired the company for a trans-Sahara water supply scheme.

Pure has signed up C$14 million in water pipeline business including deals with Atlanta, California, Texas, and Arizona. It also has water project renewals pending in the Middle East and Mexico but expects its largest growth this year will be in Europe. PUR is up 1% in the US share. It yields 2.7% and I like its niche.

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