Download - Water Utility Infrastructure Management

By Steve Maxwell
M A X W E L L R E P O R T
The “Lucky 13” Going Forward
The stock market has not had a fabulous year in 2011 —
the S&P 500 and the Dow Jones Industrial Average sit
about where they started the calendar year, and are right
now trading at around 90 percent of their yearly high
point. Water stocks, lamentably, have done even worse. As
one can see from a quick glance, while many of the stocks
in our revised Table are trading at around 80 percent of
their yearly highs, several are trading in the range of 60
percent and a couple are trading down at around 50 percent
of their high – notably Mueller Water, which continues
to suffer on-going losses, and Aegion (the new name
for Insituform).
You will note that we have made several changes to our
table of water stocks. First, we have lost a few companies
due to industry consolidation and acquisition — notably
Ameron and Nalco, which were acquired, respectively, by
National Oilwell Varco, and Ecolab at strong valuations.
Second, we dropped at least one company — Energy
Recovery — due to its small size — less than $40 million
in revenue, and continuing net losses. The company,
which came to the public markets a few years ago with
high expectations, has seen its stock price continue to
decline — from about $9.00 to a current level of less
than $3.00. Finally, we dropped a few other companies
because they simply are not really that focused on water
— i.e., less than 20 percent of their total revenues are
derived from water. This included Danaher, Robbins and
Myers, Federal Signal and URS Corp.
One bright spot from the perspective of the security
analysts has been the emergence of Xylem — the former
water division of ITT — as
a separate publicly traded company.
Indeed, Xylem now represents
one of the largest — if not
the largest — publicly traded
and pure-play water company
available on the U.S. stock markets.
It is likely to become somewhat
of a bellwether for the
health and growth prospects of
the overall water industry.
These changes leave us with a “Lucky 13” of more
pure-play water companies whose performance we will
follow going forward. The outlook for 2012 is certainly
tenuous at best, as the global economy continues to
face massive debt problems and political uncertainties
in many parts of the world. However, many continue to
believe that water companies represent a true asset
play, and should be one of the better places to put your
dollars for long-term appreciation.
Steve Maxwell is Managing Director of TechKNOWLEDGEy
Strategic Group (TSG), a Boulder, Colo.-based management
consultancy specializing in merger and acquisition
advisory services, and strategic planning for the commercial
water and environmental industries. Maxwell is author
of the annual Water Market Review, and a recent book titled
The Future of Water. He has advised dozens of water firms
on strategy and transactional issues, and can be reached at
(303) 442-4800 or maxwell@tech-strategy.com.
WATER DOLLARS
Company Price % of
52-wk hi
Revenue EBITDA
(000,000)
Market Cap. Enterprise Val/
EBITDA
EBITDA/
Revenue
ROE Performance
TSG Index
Aegion (AEGN) 15.86 53% 928 88 $619 8.8 9.5% 4.8% 8.4
Badger Meter (BMI) 29.3 64% 267 44 $440 9.9 16.5% 14.0% 14.0
Calgon Carbon (CCC) 15.04 83% 535 88 $857 9.9 16.4% 13.0% 13.8
Franklin Electric (FELE) 45.43 87% 809 122 $1,045 8.9 15.1% 14.0% 13.0
Gorman-Rupp (GRC) 29.59 81% 351 61 $621 10.0 17.4% 16.0% 14.9
Layne Christensen (LAYN) 23.45 62% 1,100 99 $457 4.8 9.0% 8.6% 7.7
Lindsay Manufacturing (LNN) 53.93 63% 479 68 $685 8.6 14.2% 15.0% 12.7
Mueller Water (MWA) 2.13 44% 1,340 96 $332 9.9 7.2% -9.0% 4.7
Northwest Pipe (NWPX) 23.37 76% 466 31 $220 10.3 6.7% 3.0% 7.0
Pentair (PNR) 36.74 87% 3,340 476 $3,637 10.4 14.3% 10.0% 12.2
Tetra Tech (TTEK) 21.98 81% 1,790 202 $1,385 7.1 11.3% 12.0% 10.2
Watts Water Tech. (WTS) 36.37 89% 1,390 191 $1,309 7.9 13.7% 6.4% 10.5
Xylem (XYL) 24.35 86% 3,740 615 $4,505 9.0 16.4% 0.0% 10.9
Total 16,535
Financial data as of December 10, 2011
November/December 2011
TSG Index: December, 2011 8.84
Water Utility Infrastructure Management 17