Water Intelligence Share Discussion Threads

[mysteronz] 10/8/2017 17:35

Paul Scott on recent trading update

Water Intelligence (LON:WATR)
Share price: 123.5p (up 14.4% today)
No. shares: 12.0m
Market cap: £14.8m

Trading update & acquisition - this is an unusual little company, mainly based in the USA (but with small UK operations too). It detects & fixes water leaks, e.g. for swimming pools. The business model is partly franchised, partly company operated branches.

I quite like the update today. Overall it's just an in line update. However, growth has been strong, with the company reinvesting the proceeds into more marketing & other overheads. I'd rather see growth, and the proceeds reinvested, than no growth at all;

...Profits before tax remain in line with expectations, reflecting the Company's choice to fuel further growth through reinvestment in both additional staff and marketing efforts in order to capitalise on the market opportunity in its geographies: United States, United Kingdom, Canada and Australia.


A lot more detail is given. The company has reacquired a couple of franchisees, which should boost the reported profits.



My opinion - I vaguely recall trying to buy some shares in this micro cap company a while back, when my friend Edward Roskill mentioned it positively, in an interview I recorded with him. However, the share was so illiquid, that I couldn't get any stock at all, so gave up on it. Pity, as the share price has almost tripled since then.

Generally, I try to avoid the smallest & most illiquid stocks these days, as I can't buy or sell in the size I need to make it worthwhile. Also, if anything goes wrong, or if you need cash in a hurry, then this type of thing can be a nightmare (or impossible) to exit.

That said, the company seems to be trading well, and growing. So it could be worth a look, if you're prepared to swallow the risk of possibly being stuck high & dry in the share.

[dozey3] 09/8/2017 14:44

Seems to be below the parapet as far as the market is concerned, being still a very small cap. As far as I can see they are doing things right: repurchasing franchises where they can; generating more cash as they expand; and establishing relationships with insurance companies. Sorry the UK arm NRW is not yet making more of an impact, but water problems will never go away and the company would seem Brexit proof. Hope I am correct in believing the shares eligible for inheritance-tax relief, being UK domiciled and on AIM.
Tuck away and forget as far as I'm concerned with my modest holding.

[silverfern] 09/8/2017 13:17

-- Net debt reduced 25% to $0.76 million as of 31 December 2016

[effortless cool] 09/8/2017 11:22

Very happy with that update. Revenue ahead of my expectations. Picked up another £10k worth on the back of it.

The cash figure of $1m is also above my expectations, but I doesn't mean much in the absence of any update on borrowing levels (they should give us net cash/debt). I view a fundraising as very unlikely, unless it is to facilitate a material acquisition. Absent that, WATR can simply use the reliable cash flows from the franchisee business to fund their continued investment in the fast growing direct business.

[zipstuck] 09/8/2017 10:15

They have maintained cash level through end of June If there was a cash call it would be to fund a further acquisition which is likely to be earnings positive. Great prospects.

[basem1] 09/8/2017 08:33

Or a bank loan, or warrants/bonds

[tinker10] 09/8/2017 08:24

Yes, it's called revenue.

[basem1] 09/8/2017 08:20

There are other ways to get funds without the need for a placing.

[t0pgrader] 09/8/2017 08:17

Strong update. With cash of only $1m my suspicion is a fund raising is on its way so will avoid until that's out of the way

[silverfern] 09/8/2017 07:14

cracking report- the price will fluctuate but over time it's only going one way

[smallcapinvestor1] 09/8/2017 07:11

Great figures today. Always made more complicated than necessary in the way they are written but the growth rates are phenomenal and the stock looks very attractive at these levels. This is a very attractive global sector to be invested in. Not many direct ways to play it.

[mysteronz] 02/8/2017 10:59

Classic pattern, one for the patient it looks like!

[effortless cool] 22/6/2017 23:08

Well, you all seem to have got onto this well ahead of me, so well done on that.

I view this as a long-term investment, silverfern, so am not particularly bothered about the lack of liquidity. I just reconcile myself to the fact that if it goes wrong, I will lose most of my investment.

The big attraction for me here. however, is that I think the reliable cash flows from the core franchisee make it very unlikely to go badly wrong. I'm buying multi bagger upside potential with relatively low downside risk.

[silverfern] 22/6/2017 19:56

I think I saw a review around 18 months ago of the potential this company had and monitored it for a while. BOught around 70p around Feb 16. I have around 30k shares, prob averaging around 100p. Shifting even that number of shares would at this stage affect the price. I would very much like to see more trading volume.

[martinthebrave] 22/6/2017 17:37

Just updated my own spreadsheet for #WATR. Originally compiled about a year ago. EPS up from 16% to 48%, PEG 0.8 to 0.52, Debt (as a ratio to nett profit) 1.7x down to 0.7x. Just a few examples of the improvement over the past 12 months. Nice to see! NB. All measures compiled from Stockopedia (Caveat Emptor!)I Hold.

[martinthebrave] 22/6/2017 17:25

Ok, I have moved across EC - nice header & thanks for doing the work. I have been in #WATR since last August 71p, adding up to 118p. Quite happy with the progress, even has nice "top up" dips!! GLA!

[effortless cool] 22/6/2017 16:47

Cheers, mick. I will update and my financial projections and the thread each time material new information is RNSd.

[mickharkins1] 22/6/2017 15:59

Excellent summary EC. I bought my first lot a few weeks ago and also took some more yesterday.

They are on a PE of 18, based on this year's profit forecasts which they confirmed in the recent trading update that they expect to meet, despite the increased investments to help fund future growth. A PE of 18 for revenue growth of 50% looks excellent value imo. Chart is also looking good for a potential breakout.

Interesting to read about DeSouza's potential conflict of interest, which I wasn't aware of.

[effortless cool] 22/6/2017 15:46

### Older valuations and commentaries cut from header to keep it to a manageable length ###

Update November 2017
========================

A very satisfactory Q3 trading statement issued on 2 November.



Momentum in revenue growth was somewhat impacted during Q3 by the hurricanes and wildfires that hit the US but, overall, seems to be running ahead of my (deliberately prudent) projections. The main engine of growth remains the corporate-owned stores. I am now forecasting $17.1m (consensus $17.2m) for 2017 and $20.6m (consensus $19.0m) for 2018.

The trading statement advises that profit remains in line with expectations due to investment in growth. For the first time, however, they give us some detail on this investment, with the money going towards building the Australian operation (lots of swimming pools) and increased marketing to acquire national accounts (a key engine of growth). Moreover, a number of regional training centres will be built over the next three years to ensure a continued supply of trained technicians. I have revised my post-tax profit projections to $0.8m for 2017 (consensus $0.9m) and $1.5m for 2018 (consensus $1.2m).

Cash of $0.9m is consistent with my projection for year-end.

I still maintain that the revenue growth and potential here supports an adjusted PE ratio of 25 and, on that basis, my valuation increases to 229.9p. At 53% above the current price of 150p, I continue to view Water Intelligence (LON:WATR) as a STRONG BUY.

Update October 2018
==================

I have now updated my forecasts to reflect the detail in the recent interim results. I have extended the modelling to a full valuation but, given the rapid growth of this company and the lack of history, do not present the results with any great conviction yet.

I do feel I have got a decent handle on revenue, however. I'm projecting $23.6m for 2018, versus the broker forecast of $21.7m. Now that finnCap have opened up their research to retail investors (thanks for the tip-off, Paul Scott), I am able to see the breakdown of the broker forecast by segment. To be honest, I think the finnCap figures are daft, with all segments except Corporate-owned stores projected to show lower revenues in 2018 H2 versus 2017 H2. All-in-all, I am confident of a beat for 2018. My 2019 revenue forecast is $26.0m (finnCap $24.4m).

My normalised EPS projections are 13.4c for 2018 and 18.3c for 2019. finnCap have 11.2c and 13.3c, respectively.

My valuation is 379p, based on an adjusted PE ratio of 25.5, which is the mean for shares classed as Speculative, Small Cap, High Flyer on Stockopedia.

=====================
Update December 2018
=====================

An excellent q3 trading statement underpinned my expectations for this year. I have actually shaded up my revenue forecast for 2018 by 4% to $24.4m, FinnCap have increased their estimate by 8% to $23.5m. We have both left our profit estimates unchanged.

For 2019, I have increased 4% to $29.0m revenue. FinnCap have increased 12% to $27.4m.

My valuation is essentially unchanged at 378p, although I now consider this biased to the upside. At a 23% premium to today's close, this represents a BUY for me.

===================
Update March 2019
===================

An excellent q4 update from Water Intelligence (LON:WATR) on Tuesday.
- Revenue of $25.3m, ahead of broker (and my) forecast.
- PTP of $1.8m, ahead of broker (and my) forecast.
- Net cash of $2.6m, ahead of my forecast.
- Very bullish on start and outlook for 2019.
I've been slow updating as I have been trying to enhance my valuation model to take more accurate account of deferred payments on acquisitions. I'm not entirely happy with this yet, but it's almost there.

I am forecasting 2019 revenue of $28.7m, versus broker forecast (per Stockopedia) of $27.4m. My adjusted net profit of $2.7m is much higher than the broker's $2.2m. My net cash projection for end-2019 is $3.5m.

Note, however, that Stockopedia is showing the finnCap projections from finnCap who, I believe, have ceased coverage since Water Intelligence (LON:WATR) changed its NOMAD and broker from them to WH Ireland in January this year. WHI are providing coverage, but it is not directly available to PIs and, for some reason, is not being picked up in Stockopedia's consensus figures. I have flagged this with Stockopedia.

My revised valuation has increased from 378p to 406p, which is 35% above the current price of 300p.

===================
Update May 2019
===================

A belated response to the 2018 full year results, released on 9 May. In practice, most of the key information was available from the q4 update, so the main change from my analysis comes from rolling on my valuation basis by six months.

My revised forecasts are (broker consensus - just WH Ireland, in practice - per Stockopedia in brackets):
# Revenue: .............. 2019 $30.3m ($29.6m) .. 2020 $33.4m ($32.9m)
# Reported net profit: .. 2019 $2.1m ............ 2020 $2.5m
# Adjusted net profit: .. 2019 $2.4m ............ 2020 $2.8m
# Reported EPS: ......... 2019 17.9c ............ 2020 21.9c
# Adjusted EPS: ......... 2019 17.9c (15c) ...... 2020 21.4c (18c)
# Net cash: ............. 2019 $3.0m ............ 2020 $4.8m

My revised valuation has increased from 406p to 432p, which is 24% above the current price of 347.5p.

===================
Update July 2019
===================

This update reflects the reacquisition of the Tucson franchise and the recent fundraising. I have also incorporated a significant enhancement to my model to make more accurate allowance for the cashflow implications of deferred payments. Finally, I have adjusted my valuation basis to back out the impact of capitalising intangibles. I now have my model where I want out to be.

My revised forecasts are shown below, with the equivalent figures from WH Ireland in brackets:
# Revenue: .............. 2019 $31.0m ($29.6m) .. 2020 $34.2m ($32.9m)
# Reported net profit: .. 2019 $1.9m ............ 2020 $2.3m
# Adjusted net profit: .. 2019 $2.3m ($2.3m ..... 2020 $2.7m ($2.5M)
# Reported EPS: ......... 2019 15.4c ............ 2020 19.0c
# Adjusted EPS: ......... 2019 16.0c (15.3c) .... 2020 18.94c (17.8c)
# Net cash: ............. 2019 $5.7m ($3.1m) .... 2020 $7.1m ($4.1m)

My revised valuation has decreased from 432p to 405p, which is 16% above the current price of 350p. The drop is mainly due to the deduction of capitalised intangibles from the valuation calculation.

At this level, I still consider WATR a BUY.

===================
Update October 2019
====================

This update reflects the belated H1 results and the investment in EAI.

My revised forecasts are shown below, with the equivalent figures from WH Ireland in brackets:
# Revenue: .............. 2019 $32.7m ($29.6m) .. 2020 $35.9m ($32.9m)
# Reported net profit: .. 2019 $1.8m ............ 2020 $2.4m
# Adjusted net profit: .. 2019 $2.4m ($2.3m ..... 2020 $2.8m ($2.5m)
# Reported EPS: ......... 2019 15.1c ............ 2020 20.2c
# Adjusted EPS: ......... 2019 17.4c (15.3c) .... 2020 20.4c (17.8c)
# Net cash: ............. 2019 $1.8m ($3.1m) .... 2020 $2.3m ($4.1m)

Note that the broker has not changed their forecasts since March and they are now profoundly out of date. In particular, there is no doubt that consensus forecast revenues will be materially exceeded. Along with the above, my analysis is showing encouraging indication son underlying margins (more on the Stockopedia thread) that could drive further upgrades.

My revised valuation has decreased from 405p to 393p, which is 47% above the current price of 268p. The drop is due to my targeting a lower adjusted PE ratio (22, as opposed to 26) to better reflect the current state of the market.

At this level, I still consider WATR a STRONG BUY. Governance remains a concern, however - the EAI transaction has added another significant related party interest - and this is not a share for risk adverse investors.

===================
Update November 2019
====================

This update reflects the q3 trading statement released on 30 October. This updated us on segmental revenues and the cash position. On revenues, the figures indicated that I was a bit over-optimistic in my projections for Corporate-Owned Stores and Franchise-Related Activities, so I have trimmed my projections for those segments. The RNS showed that International Corporate activities had kicked on strongly after a three flat periods, however, so I increased my projections for that segment. Cash of $2.7m at q3 quarter-end was well ahead of my q4 quarter-end projection. I have made a few adjustments to close this gap somewhat, but suspect most of the rest relates to the timing of deferred payments over the half year period. This is a prudent assumption at this stage, allowing potential further upside.

My revised forecasts are shown below, with the equivalent figures from WH Ireland in brackets. Strangely, WHI have not updated their forecasts, despite their revenue figures, in particular, undoubtedly being far too low.
# Revenue: .............. 2019 $32.4m ($29.6m) .. 2020 $34.7m ($32.9m)
# Reported net profit: .. 2019 $1.8m ............ 2020 $2.4m
# Adjusted net profit: .. 2019 $2.4m ($2.3m ..... 2020 $2.8m ($2.5m)
# Reported EPS: ......... 2019 15.0c ............ 2020 19.6c
# Adjusted EPS: ......... 2019 17.3c (15.3c) .... 2020 19.8c (17.8c)
# Net cash: ............. 2019 $2.1m ($3.1m) .... 2020 $2.9m ($4.1m)

My revised valuation has decreased from 393p to 385p, which is 40% above the current price of 275p. The improved cash forecast benefitted the valuation but this was more than offset by the FX change in the conversion of USD profits to GBP earnings per share.

At this level, I still consider WATR a STRONG BUY. Governance remains a concern, however, and this is not a share for risk adverse investors.

===================
Update February 2020
====================

This update reflects the year-end trading statement released on 10 February. Gratifyingly, my revenue projection was spot on in aggregate, although i was a bit out at the divisional level.

My revised forecasts are shown below, with the equivalent figures from WH Ireland in brackets.

# Revenue: .............. 2019 $32.4m ($32.4m) .. 2020 $34.6m ($34.0m)
# Reported net profit: .. 2019 $1.8m ............ 2020 $2.7m
# Adjusted net profit: .. 2019 $2.4m ($2.2m ..... 2020 $2.9m ($2.6m)
# Reported EPS: ......... 2019 15.0c ............ 2020 23.0c
# Adjusted EPS: ......... 2019 17.2c (16.0c) .... 2020 21.4c (18.0c)
# Net cash: ............. 2019 $1.8m ............ 2020 $4.2m

My revised valuation has decreased from 385p to 376p, which is 16% above the current price of 325p.

At this level, I still consider WATR a BUY. Governance remains a concern, however, and this is not a share for risk adverse investors.

===================
Update June 2020
====================

This update reflects the year-end results, the q1 trading statement and the two franchise reacquisitions made during q2.

My revised forecasts are shown below, with the equivalent figures from WH Ireland in brackets.

# Revenue: .............. 2020 $36.3m ($34.1m) .. 2021 $39.8m ($35.9m)
# Adjusted PBT: ......... 2020 $3.8m ($3.6m ..... 2021 $4.1m ($3.8m)
# Reported EPS: ......... 2020 15.0c ............ 2021 23.0c
# Adjusted EPS: ......... 2020 17.5c (17.3c) .... 2021 18.0c (18.4c)
# Net cash: ............. 2020 -$1.8m ........... 2021 $1.1m

I have revised my model to take account of the partly paid shares held by the chairman (which are effectively options) and reduced my target PE ratio to reflect the general devaluation of the market. Largely as a result of these changes, my valuation has decreased from 376p to 321p, which is 2% above the current price of 315p.

Note that my figures are all hard of the broker forecasts (except for EPS, where I don't think they take proper account of dilution). The broker revenue forecast for 2020 is, in my opinion, too low and I do expect broker upgrades as the year progresses. I also view my projections as more likely to improve than deteriorate.

[effortless cool] 22/6/2017 13:22

New thread:



Feel free to join me!

[effortless cool] 22/6/2017 13:19

Water Intelligence came to the Aim market in 2010, through a reverse takeover of Qonnectis plc. Its principle asset is the American Leak Detection (ALD) business, which it operates on both a franchise and corporate-owned basis.

Background
===========

As described in the 2010 prospectus:



“ALD focusses on the accurate, non-destructive detection of all types of leaks including hidden water and sewer leaks, together with repair and other related services. ALD’s service technicians utilise proprietary training and specialist equipment such as infrared cameras and acoustic devices to pinpoint leaks, employing less invasive methods to find the source of the leak compared to breaking or drilling holes in walls and floors. Because leaking water can travel along water lines or leaks may be pinhole size along a water pipe, in many instances, ALD’s service offerings have the potential to reduce the repair costs for the consumer compared with typical plumbing solutions as they do not rely on a “trial-and-error” method of exposing whole sections of pipes to detect leaks”.

Also taken from the prospectus:

“[ALD] believes that its competitive advantages include its full range of service offerings, its brand and over 30 years of experience, the specialised equipment it uses, the training it provides its franchise owners and technicians working from business run directly by ALD, its marketing system and the key relationships it has with channel partners such as insurance and restoration companies. For certain segments of its business, ALD may face competition from others, including independent plumbers, repair services, other leak detection companies and services”.

“[ALD] is aware of certain other companies or businesses that offer leak detection services. However, as far as it is aware, these businesses tend to be small owner-run operations without the franchise or branding presence of ALD”.

The Franchisee Business
=======================

The ALD franchisee business is the core business of Water Intelligence. It's website is linked below.



ALD’s revenue model is principally derived from franchise royalties. Franchisees pay monthly royalties based on a percentage of gross monthly sales, ranging from 6% to 10%.

It also derives revenue from the sale of new franchises and supplying its franchisees with revenue and equipment at a modest mark-up.

As of year-end 2016, ALD had 96 franchisees, the vast majority being in the USA. System-wide sales for 2016 were approximately $75m, generating franchise royalty income to the Group of $5.5m.



Franchise revenue is on an upwards trend, in spite of a reduction in franchise numbers as some have switched to being corporate-owned (more later). In fact, this trend has accelerated during the first four months of 2017, rising 7.7%, driven mainly by new national agreements with an insurance company and a pool management company.



However, what the market seems to have overlooked is the remarkable stability of this income stream, which has the characteristics of an index-linked annuity. This reliable, high margin business provides a remarkably strong foundation for the investment for growth going on elsewhere in the business.

Corporate-owned Franchises
==========================
Water Intelligence has a strategy of selectively buying back franchisees in order to retain a greater share of the profits and to create regional hubs to support continued franchisee growth at a local level. During 2016, it increased corporate-owned franchises from six to ten and has added two more (one a start-up) so far during 2017.

The corporate-owned franchises are the major engine of revenue growth, rising 61% to $4.2m in 2016 and 60% in the first four months of 2017. Although much of this growth relates to the expansion of the network, it is also driven by organic growth after reacquisition.

International Businesses
========================

Although ALD has operated various international franchisees for many years, during 2016 it took its international strategy a step further by buying businesses in Australia and the UK. The Australian business was a former franchisee but the British one, NRW, is a bigger company specialising in municipal work, most notably with Thames Water. NRW is now supporting corporate and franchise locations elsewhere to bid for and execute municipal jobs.

NRW contributed $0.5m of revenue during the first four months of 2017.

Financials
===========

Only one broker – finnCap – covers Water Intelligence. For 2017 and 2018, finnCap forecasts revenues of $14.8m and $16.3m, respectively. These have not been updated in response to the very bullish message on revenue growth in the June trading statement. My own forecasts, which I do not consider aggressive, give $15.8m for 2017 and $17.2m for 2018.

The June trading statement indicated profits in line with expectations due to the costs associated with increased headcount and infrastructure to enable accelerated revenue growth. finnCap forecast net profits of $0.91m for 2017 and $1.11m for 2018. I am somewhat more conservative, at $0.78m and $0.84m, respectively.

Cash at end-April was $935k, which the company advised was “sufficient to execute its growth plan”. My projections do not suggest any cash flow strain is likely over the next two years.

Downsides
==========

Besides the normal risks arising from any small cap investment, there are specific risks applying to Water Intelligence that should be taken into consideration.

Firstly, it is an overseas business listed on AIM. There are many unfortunate precedents in this regard that have cost UK investors a great deal of money. There are two factors that give me reassurance in this regard, however: (1) It is a US company, rather than Chinese, Malaysian or Greek; and (2) the reverse takeover of a complementary business at least gives a sensible reason for it ending up on AIM.

Secondly, Patrick DeSouza appears to have a potentially over-dominant role. He is Executive Chairman of Water Intelligence, contrary to governance best practice. He is also Chief Executive Officer of Plain Sight, a related party to Water Intelligence bringing clear potential for conflicts of interest. Finally, he is the largest shareholder, with 24.8%. He seems to be playing things straight thus far, however.

Valuation
=========

Water Intelligence appears to be well-positioned to establish a dominant position in a fragmented market. It is showing excellent growth, driven both organically and by acquisition. It is already profitable and its growth ambitions are underpinned by the near guaranteed profitability of the franchisee business, I consider a PE ratio of 25 a perfectly reasonable target.

Taking my projected results and adjusting for debt, options, deferred considerations, amortised intangibles, FX, etc, I arrive at a valuation of 183.2p, which represents a premium of 38% to today’s price of 132.5p.

I consider Water Intelligence to be a STRONG BUY.

### Older valuations and updates have been cut and transferred to post #1, to keep this header to a manageable length ###



===================
Update September 2020
====================

This update reflects the interim results published on 17 September.

My revised forecasts are shown below, with the broker consensus figures in brackets.

# Revenue: .............. 2020 $35.7m ($34.1m) .. 2021 $40.6m ($36.3m)
# Adjusted PBT: ......... 2020 $3.7m ($3.7m ..... 2021 $4.1m ($4.1m)
# Adjusted EPS: ......... 2020 16.2c (17.8c) .... 2021 17.9c (19.5c)
# Net cash: ............. 2020 -$0.7m ($2.8m) ... 2021 $1.8m ($3.7m)

The broker consensus is based on the analyses by WH Ireland and Dowgate Capital. I believe that both are unduly conservative on revenues and that a top line upgrade is almost certain for 2020. Interestingly, however, consensus PBT is almost identical to my projections, suggesting that I may be being a bit prudent on margins.

I suspect that the variance in adjusted earnings occurs because the brokers are not allowing for the nil paid options held by the chairman. The difference in net cash is because I include outstanding deferred considerations as debt, whereas the brokers do not.

Dowgate Capita have just initiated (paid for) coverage and their 36 page note provides a nice summary of the business (registration required):



At this level, I consider WATR a HOLD. Governance remains a concern, however, and this is not a share for risk adverse investors.

===================
Update July 2021
===================

This update reflects the H1 trading statement published on 29 July, as well as the franchise reacquisitions, new national insurance account and fundraising announced earlier in July.

My revised forecasts are shown below, with the broker consensus figures in brackets. Note that net cash deducts deferred considerations as well as borrowings.

# Revenue: .............. 2021 $53.3m ($47.2m) .. 2022 $59.7m ($55.5m)
# Adjusted PBT: ......... 2021 $7.7m ($6.1m ..... 2022 $10.0m ($7.5m)
# Adjusted EPS: ......... 2021 32.0c (27.8c) .... 2022 42.6c (34.2c)
# Net cash: ............. 2021 -$6.7m (-$8.2m) .. 2022 $0.6m (-$3.6m)

The broker consensus is based on the analyses by WH Ireland and Dowgate Capital. I believe that both are unduly conservative on revenues and that a material top line upgrade is almost certain for 2021 and 2022.

I suspect that the variance in adjusted earnings occurs because the brokers are not allowing for the nil paid options held by the chairman.

The share price has been incredibly strong recently and stands at 1125p at the time of writing. In order to justify that valuation, WATR needs to be valued at the 90th decile PE ratio multiple. I don't think that is unreasonable, given its stellar past performance and clear future potential.

At this level, I consider WATR a HOLD. Governance remains a concern, however, and this is not a share for risk adverse investors.

========================
Update September 2021
========================

This update reflects the H1 interims published on 13 September. Although all the key figures had been covered in the half-year trading statement in July, the big surprise for me in these results was that gross margin was materially better than I had expected, whilst operating expenses were materially higher. This is good news for future projections with higher revenue.

My revised forecasts are shown below, with the broker consensus figures in brackets. Note that net cash only deducts borrowings. I had previously also deducted deferred considerations, which I think is a more accurate approach, but have changed to align with the brokers' approach.

# Revenue: .............. 2021 $54.3m ($48.7m) .. 2022 $63.2m ($57.0m)
# Adjusted PBT: ......... 2021 $8.2m ($6.4m ..... 2022 $11.7m ($7.8m)
# Adjusted EPS: ......... 2021 33.9c (26.4c) .... 2022 50.9c (31.9c)
# Net cash: ............... 2021 $8.8m ($3.0m) ... 2022 $9.5m ($3.5m)

The broker consensus is based on the analyses by WH Ireland and Dowgate Capital. I believe that both are unduly conservative and that material top land bottom line upgrades are almost certain for 2021 and 2022.

The share price has been incredibly strong this year and stands at 1180p at the time of writing. Valuing WATR at the 90th decile PE ratio multiple gives 1,329p which provides robust justification for the current and, indeed, a higher future share price.. I don't think that the 90th percentile is unreasonable, given WATR's stellar past performance and clear future potential.

At this level, I consider WATR a strong HOLD. Governance remains a concern, however, and this is not a share for risk adverse investors.

Declaration of Interest
======================
I took some profits when the WATR price was holding up as the market collapsed in March/April and a bit more when the price rose over 900p and then 1300p. I now own 66,000 shares at an average of 158.7p, with a realised gain of £121.6k.

[silverfern] 14/6/2017 20:44

Due to investment, which will continue, revenue should increase by around 50% to $20m. This should give the company a bit of critical mass.THe company is highly profitable but reinvests to drive growth. It's a standard model. I would suggest they are aiming at revenue of £50m in two years with acquisitions in UK and Aus to complement to the business in the US.

[mysteronz] 13/6/2017 12:55

Great update, very pleased with it after the price reaction to the FY results. V pleasing to see the direct insurance jobs increase so dramatically, area for future growth...!

[silverfern] 13/6/2017 12:40

nice update today

[effortless cool] 01/6/2017 15:13

Ditto. Added another 15k @110p