From Simon T in the IC (i have no view on this stock - in the too hard pile!)
Water Intelligence (WATR:338p) is a multinational provider of precision, minimally invasive water leak detection and remediation solutions. Around 90 per cent of revenue is generated in the US, a country where 15 per cent of all water is lost due to leakage.
Water Intelligence is targeting this captive market through its American Leak Detection (ALD) business that has revolutionised the water infrastructure services industry. Specifically, ALD has pioneered the use of acoustic and infrared-based technology to pinpoint water leaks as opposed to traditional methods of visual inspection that require breaking walls or digging up surfaces until the origins of the leak could be found.
ALD’s focus has been on small-diameter pipe: homes, swimming pools, and commercial premises. For these types of hard-to-find leaks, customers such as homeowners, property management and insurance companies value the quality of service and the fact that ALD’s proprietary technology minimises destruction to walls, floors, and roofs.
Investment in technology is a key differentiator of Water Intelligence’s product and service offering and has helped grow ALD into a national business that operates in 150 locations across 46 US states. The business continues to capture market share by establishing national channels with insurance companies, property management and municipalities.
Sensibly, Water Intelligence is using strategic partnerships to drive organic growth. For instance, ALD has recently entered a partnership with StreamLabs, a Chubb Insurance company and a leading provider of patented, state-of-the art water usage monitoring, leak detection and water shut-off solutions for commercial and residential properties. ALD expects to generate organic revenue and profit growth through:
• The resale of StreamLabs products at favourable wholesale prices.
• Service installations of devices by ALD from StreamLabs.
• ALD “aftercare” programmes for water management sought by residential and commercial customers.
• Leveraging ALD’s other proprietary products.
Much like how insurance companies have transformed healthcare, insurance companies are working with homeowners to promote preventive maintenance solutions for water infrastructure ranging from water monitoring to alerts to minimally invasive leak detection and repair. As the leader in the US in providing end-to-end solutions to more than 200,000 residential customers each year, ALD is the only company in a fragmented services industry that can offer insurers national coverage for leak detection and the highest level of data security through its cloud-based Salesforce application.
Having signed multiple national insurance contracts last year, ALD now works through national contracts with 20 of the largest US insurance companies, providing both insurance companies and their loss adjusters with a trusted solutions partner and operational coverage across the country.
A market leader in its field delivering growth
ALD’s 44 directly owned US corporate operated locations account for two-thirds of group revenue and adjusted pre-tax profit (pre-central overheads), but the franchise operation is also an important income generator. That’s because ALD sells franchises and receives royalty income from the franchisees based on a percentage of gross sales to third parties. It then uses debt funding to buy in mature franchises at favourable prices which provides an exit for the franchise owner. It’s a business model that works for both parties.
The fact that the share price declined 6 per cent after the trading update (22 May 2025) is a reaction to the company reporting flat pre-tax profit of $2.5mn on 4 per cent higher revenue of $21.3mn in the first quarter of 2025, albeit the 10 per cent growth in underlying cash profit to $4.1mn is a far better metric to focus on. Moreover, management reported a strong April, booking $1.1mn of cash profit on $7.8mn of revenue during the month.
It adds credibility to Dowgate Capital’s maintained expectation that underlying operating profit, pre-tax profit and earnings per share (EPS) can rise by more than a fifth to $12.7mn, $11.2mn and 44.3c, respectively, on 16 per cent higher revenue of $97mn. Furthermore, the board has almost $20mn of funding available to make earnings accretive acquisitions to broaden the geographic footprint and increase the scale of directly owned businesses. Debt ratios are improving too as current total net debt (including deferred consideration on the reacquisition of franchises) to cash profit ratio of 1.5 times should fall to 1.2 times by the year-end.
So, although the shares are below my 377.5p entry level (Alpha Research: ‘Tap into a small-cap company that’s a market leader’, 6 March 2025), there is no doubt in my mind that Water Intelligence is making strong underlying progress. Trading on an enterprise valuation of 5.7 times cash profit estimates and on a prospective price/earnings (PE) ratio of 10, the share price should bounce back. A US listing is also being explored and can only help improve investor sentiment for this underrated company. Buy.
I agree that this is a disappointing update and have also sold my shares. I agree with your comment other than that you used statutory PBT and compared it to adjusted PBT provided by the broker. If you use adjusted PBT for both the required EPS acceleration in YTG becomes something like 40%, but the point remains the same.
From Simon T in the IC (i have no view on this stock - in the too hard pile!)
Water Intelligence (WATR:338p) is a multinational provider of precision, minimally invasive water leak detection and remediation solutions. Around 90 per cent of revenue is generated in the US, a country where 15 per cent of all water is lost due to leakage.
Water Intelligence is targeting this captive market through its American Leak Detection (ALD) business that has revolutionised the water infrastructure services industry. Specifically, ALD has pioneered the use of acoustic and infrared-based technology to pinpoint water leaks as opposed to traditional methods of visual inspection that require breaking walls or digging up surfaces until the origins of the leak could be found.
ALD’s focus has been on small-diameter pipe: homes, swimming pools, and commercial premises. For these types of hard-to-find leaks, customers such as homeowners, property management and insurance companies value the quality of service and the fact that ALD’s proprietary technology minimises destruction to walls, floors, and roofs.
Investment in technology is a key differentiator of Water Intelligence’s product and service offering and has helped grow ALD into a national business that operates in 150 locations across 46 US states. The business continues to capture market share by establishing national channels with insurance companies, property management and municipalities.
Sensibly, Water Intelligence is using strategic partnerships to drive organic growth. For instance, ALD has recently entered a partnership with StreamLabs, a Chubb Insurance company and a leading provider of patented, state-of-the art water usage monitoring, leak detection and water shut-off solutions for commercial and residential properties. ALD expects to generate organic revenue and profit growth through:
• The resale of StreamLabs products at favourable wholesale prices.
• Service installations of devices by ALD from StreamLabs.
• ALD “aftercare” programmes for water management sought by residential and commercial customers.
• Leveraging ALD’s other proprietary products.
Much like how insurance companies have transformed healthcare, insurance companies are working with homeowners to promote preventive maintenance solutions for water infrastructure ranging from water monitoring to alerts to minimally invasive leak detection and repair. As the leader in the US in providing end-to-end solutions to more than 200,000 residential customers each year, ALD is the only company in a fragmented services industry that can offer insurers national coverage for leak detection and the highest level of data security through its cloud-based Salesforce application.
Having signed multiple national insurance contracts last year, ALD now works through national contracts with 20 of the largest US insurance companies, providing both insurance companies and their loss adjusters with a trusted solutions partner and operational coverage across the country.
A market leader in its field delivering growth
ALD’s 44 directly owned US corporate operated locations account for two-thirds of group revenue and adjusted pre-tax profit (pre-central overheads), but the franchise operation is also an important income generator. That’s because ALD sells franchises and receives royalty income from the franchisees based on a percentage of gross sales to third parties. It then uses debt funding to buy in mature franchises at favourable prices which provides an exit for the franchise owner. It’s a business model that works for both parties.
The fact that the share price declined 6 per cent after the trading update (22 May 2025) is a reaction to the company reporting flat pre-tax profit of $2.5mn on 4 per cent higher revenue of $21.3mn in the first quarter of 2025, albeit the 10 per cent growth in underlying cash profit to $4.1mn is a far better metric to focus on. Moreover, management reported a strong April, booking $1.1mn of cash profit on $7.8mn of revenue during the month.
It adds credibility to Dowgate Capital’s maintained expectation that underlying operating profit, pre-tax profit and earnings per share (EPS) can rise by more than a fifth to $12.7mn, $11.2mn and 44.3c, respectively, on 16 per cent higher revenue of $97mn. Furthermore, the board has almost $20mn of funding available to make earnings accretive acquisitions to broaden the geographic footprint and increase the scale of directly owned businesses. Debt ratios are improving too as current total net debt (including deferred consideration on the reacquisition of franchises) to cash profit ratio of 1.5 times should fall to 1.2 times by the year-end.
So, although the shares are below my 377.5p entry level (Alpha Research: ‘Tap into a small-cap company that’s a market leader’, 6 March 2025), there is no doubt in my mind that Water Intelligence is making strong underlying progress. Trading on an enterprise valuation of 5.7 times cash profit estimates and on a prospective price/earnings (PE) ratio of 10, the share price should bounce back. A US listing is also being explored and can only help improve investor sentiment for this underrated company. Buy.
I agree that this is a disappointing update and have also sold my shares. I agree with your comment other than that you used statutory PBT and compared it to adjusted PBT provided by the broker. If you use adjusted PBT for both the required EPS acceleration in YTG becomes something like 40%, but the point remains the same.
As always a first class analysis, I invested in ONDO under water for time being, holding on for it's product to get a foothold