Disturbingly, about 1.3 billion people (or 20% of the world’s population) still do not have access to clean water, while 2.5 billion people lack adequate sanitation facilities – the vast majority living in underdeveloped countries. Clearly, this is a very unsatisfactory situation that needs to be addressed in any civilised world. The global market for water treatment is worth $50bn and growing at roughly 8% a year. This is being driven by increased water consumption, greater recycling of dirty water, tougher regulation on water quality (especially in Europe) and better sewage control in the developing world. So here’s a share to cash in the demand for water treatment.
Gamble of the week:
Amiad (Aim, AFS: 158p)
Amiad Filtration Systems is a leading producer of advanced water-filtration products for industry, utilities and agriculture. It is based in Israel, but sells its products globally across the Americas, Africa, Europe, Asia and Australasia, with 90% of its products exported.
Amiad, with forecast 2006 sales of $45m, possesses around a 15% share of its niche markets, which are worth between $250-$350m a year. Its proprietary products are cutting-edge automatic filtration systems, which offer improved performance and lower running costs than its competitors.
In December 2005, the firm listed on Aim at a price of 129p. In May, the shares fell by over 40%. This was triggered by a softer-than-expected start to 2006, caused by delayed customer orders and weather issues in the irrigation business. Part of this revenue shortfall has now been recovered, as the chairman last week revealed to shareholders that sales in both May and June had been strong.
Consequently, with the top-line now back on track, I believe the recent pull-back in the stock price offers long-term investors an attractive buying opportunity.
Along with its existing markets, Amiad has also targeted a number of other high-growth applications, which are expected to generate above-average sales growth in the medium term. These opportunities include ballast water-filtration systems for ships and offshore oil rigs, and pre-filtration equipment for industry.
The business is presently under-represented in many key markets. Expansion into Brazil, Mexico, India, Russia, Eastern Europe, Africa, the UK and China should provide further upside.
At 160p, Amiad has a market cap of just £31m, with net debt of $2.2m as at December 2005. Amiad’s house broker, Panmure Gordon, expects earnings per share of 10.6p this year, rising to 12.4p (with a dividend yield of 3.8%) and 14.7p for 2007 and 2008, respectively. Consequently, the shares trade on an undemanding 2007 p/e of 13, versus its sector peers of more than 17. Last week, Panmure upgraded its recommendation from ‘hold’ to ‘buy’, with a 265p price target.
Amiad offers an attractive investment opportunity in a sector with long-term organic growth. It possesses leading technology in its niche filtration markets and plans to grow further both by entering new markets and via earnings enhancing acquisitions.
Recommendation: BUY at 158p.
Paul Hill’s personal portfolio has gone up by 483% over the last five years. To find out more about his specialist share-tipping service, ‘Half Price Shares’, click on the link below: