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Date : 30/03/2022

Fluence Corporation Ltd



Market Cap : $131.21 Million


52 Week Range : $0.150 - $0.260

Share Price : $0.20

An undervalued company in a niche market with the potential to capture a huge addressable market estimated at $118 billion. A speculative “Buy” from us.

Company Analysis

Fluence Corporation Ltd (ASX: FLC) is a leader in the decentralised water, wastewater, and reuse treatment markets with its Smart Products Solutions (SPS), including Aspiral, NIROBOX and SUBRE. In addition to rapid delivery and commissioning of decentralised solutions to meet a broad range of needs, Fluence offers ongoing operation and maintenance support and water as a service and other recurring revenue solutions. Fluence has a broad international footprint and focuses on high growth markets, including China, the Middle East, Southeast Asia, and North America.

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MABR wastewater product Sales Strategy Positioned to drive significant growth

In the final quarter of the 2020-year, Fluence made some important strategic decisions, transitioning the CEO role and setting the business focus towards selling MABR wastewater treatment solutions in China and Southeast Asia and NIROBOX desalination solutions in the Middle East and Southeast Asia.

This strategic change is focused on profitable growth in four key product and market segments:

  1. MABR wastewater solutions in China and Southeast Asia
  2. NIROBOX desalination solutions in the Middle East and Southeast Asia
  3. Sales through partners in the US and Caribbean, including recurring revenue projects through sales of water instead of equipment, and
  4. The Ivory Coast water treatment project

Fluence is securing profitable orders and is developing activities in different geographies and regions. The Company is also exploring partnerships to grow its sales and share its business costs. After completing the Ivory Coast project in two years, Fluence is positioned as a Smart Product Solutions (SPS) based business with targeted gross margins of 35%, operating expenses to revenue of approximately 20% EBITDA margins in the 15% range.

The Ivory Coast project provides a valuable reference for complex water treatment and is an important source of profit and cash flow over the next two years. However, its lower margin will impact the overall reported gross margin until 2023, so we anticipate that Fluence will only partially achieve these targets until at least 2023.

Fluence provides Technology and products with a prospective high demand

Fluence aims to dominate the market with state-of-the-art sustainable water treatment solutions worldwide. Hence, the Company produces high-quality water whilst saving energy and improving resilience. Furthermore, Fluence is committed to leading the decentralised water and wastewater treatment solutions by capturing market share in these key spaces:

  1. Pure-Play water treatment
  2. Proprietary Technology
  3. Fast deployable “just-in-time” infrastructure
  4. Water product with Lowest Total Cost of Ownership

The global water and wastewater treatment market was valued at $350 billion in 2020 (US$263 billion). The market is projected to reach $650 billion by 2028 at a CAGR of 7% from FY21 to FY28. This growth is expected as the market returns to pre-pandemic levels, having been hit hard since the outbreak of COVID-19. Hence, the pandemic has revitalised the importance of resilient and future-ready water and wastewater infrastructure. Municipalities and industries across the globe have begun adopting net-zero, decarbonisation, and circularity goals to become sustainable, resilient, and future-ready.

The key focus for authorities and governments is reducing energy consumption and improving energy efficiency. End users are further focusing on the circularity of both water and sludge. The Nutrient and energy recovery from sludge has received fresh impetus, especially in the APAC region.

The European Union and North American region are set to significantly invest in treating emerging pollutants, whilst treated wastewater reuse will be the major agenda in APAC, North America, Latin America, and the Middle East.

Source: Statista & FLC

According to FLC, the world population is expected to reach 9.7 billion people by 2050, and 75% of the global population will be facing water shortages. This is due to 80% of the wastewater released being not treated. FLC intends to exploit this shortfall of wastewater treatment infrastructure to grow its addressable market, estimated to be $118 billion.

Furthermore, Fluence’s innovative solutions contribute to resource conservation, energy savings, energy from waste, and water reuse, which is in line with future sustainability requirements. Hence, Fluence’s MABR and NIROBOX installations collectively save an estimated 25 GWh of energy, which is about 17,900 tons of CO2 annually compared to conventional technologies. Treated wastewater from Fluence’s MABR installations collectively removes 1,050 tons of nutrients that would otherwise damage the environment.

Fluence’s Waste to Energy solutions treat wastewater and produce energy on-site by converting biomass to biogas which generates 147 GWh in energy savings, which is 103,500 tons of CO2 annually compared to fossil fuels. Fluence water and wastewater solutions meet 10 out of 17 United Nations Sustainable Development Goals.

Company Updates

FY22 Outlook: Strong revenue is expected to grow with an extensive backlog of Smart Product Solutions (SPS)

Fluence achieved several important milestones, including underlying positive EBITDA. The Company began to execute the Ivory Coast water treatment project (IC), achieved strong sales of the Smart Product Solutions (SPS) in China and Southeast Asia, with Recurring Revenues (RR) also contributing.

Last year, Fluence finished with a sharpening of the strategic focus for the Group and a change of leadership. The Company is strongly positioned for growth onward FY22, underpinned by Smart Product Solutions sales and the expectation of continuing to be positive EBITDA for the years ahead.

For FY22 and beyond, Fluence aims to achieve these four key target segments:

  1. Develop the MABR wastewater solutions in Asia and the Middle East.
  2. Implement NIROBOX desalination solutions in the Middle East and Southeast Asia.
  3. Expand the recurring revenue and equipment sales opportunities in the USA and Caribbean, targeting water as a service to commercial customers.
  4. Progress the Ivory Coast Water Treatment Project on time and budget.

Fluence aims to penetrate priority markets with immediate needs, strong growth, and healthy margins.

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Source: FLC

Investment Thesis

We are pleased to see that Fluence has been doing very well with its Smart Products Solutions and has delivered its EBITDA guidance for the year despite continued COVID-19 related headwinds, which have included challenging travel quarantine requirements, a slowdown in plant commissioning, delays in new orders and disrupted supply chains.

We are also impressed by Fluence’s ability to increase its MABR plant capacity, which has been sold by 56% last year in such an environment. After several years of seeing China generate most of the Company’s MABR sales, it is positive to see MABR sales by volume of wastewater treated diversifying to additional geographies. We believe this is testimony to the broad-based, growing adoption of breakthrough MABR solutions, including the world’s largest MABR plant sold to date. The NIROBOXTM product line has also seen stronger adoption, with sales of eight units versus only one in 2020. Fluence has for some time targeted selling MABR and NIROBOX plants to resorts in the Caribbean and is pleased to close seven such sales in 2021. In 2022, the Company will focus on securing recurring revenue contracts with up-front capital costs funded by its existing Upwell debt facility.

Meanwhile, Fluence also continues to execute its Ivory Coast Project profitably, which remains on target for completion by mid-2023. Fluence’s operating cash flow has been trending positively since the Company’s strategic repositioning in November 2020. This demonstrates management discipline, enabling the firm to fund its increasingly focused and streamlined operating costs.

Fluence emphasises profitable growth, growing the Smart Products Solutions and the recurring revenues as rapidly as possible whilst remaining EBITDA positive. Onward FY22, we anticipate further Smart Products Solutions sales expansion, accentuating growth in the Company’s North America business, particularly with recurring revenue derived from sales of water contracts.

In addition to organic sales growth led by the strengthened North American business, Fluence also intends to take advantage of suitable opportunities to acquire teams with existing operations within geographies of interest and where any such cost can be accommodated within the firm’s existing financial resources.

Fluence continues to focus on its Smart Products Solutions business growth throughout Asia. The Group look to complete the spinoff of its Italy business unit and continue to further focus and streamline its operating efficiencies around Smart Products Solutions and recurring revenue sales.

Transition to higher Margin Revenue

Fluence reported meeting its published guidance for the second consecutive year. The strong revenue growth in Smart Products Solutions, MABR wastewater solutions adoption, and the sales growth outside China were the principal drivers behind another year of positive underlying EBITDA. Furthermore, a strong Smart Products Solutions backlog entering 2022 underpin guidance.

Q4-2021 Key achievements in a nutshell:

  • Q4 Revenues from Continuing Operations of $43.5 million, up 117% on Q3-2021 and 113% on Q4-2020.
  • FY21 Revenue from Continuing Operations of $103.2 million grew by 18% over FY20.
  • Fluence met its guidance for Revenue and Positive Underlying EBITDA. The Smart Products Solutions’ revenues for FY21 from continuing and discontinued operations were $39.6 million versus guidance of $35 million to $50 million. Also, the Underlying EBITDA remains positive at $1 million in FY21.
  • Smart Products Solutions backlog entering 2022 is 65% higher than during early 2021.
  • MABR Sold Capacity Increased by 56%. 313 plants were sold to date, up from 245. This represents a total treatment capacity to treat wastewater for almost one million people, up from 600,000.
  • MABR Sold Capacity ex-China Exceeded sales within China. Sales in Cambodia, the Caribbean, US, and United Arab Emirates enabled sales outside of China during FY21 to outpace sales within China for the first time.
  • Expanded Nirobox Sales – 8 units which are 6 plants sold in FY2021, including 5 plants at Caribbean resorts and the first multi-unit Nirobox order in Taiwan.
  • The Operating Cashflow remains positive at $5.2 million in the fourth quarter of FY21.

Source: FLC

Fluence saw a substantial increase in MABR sold capacity during FY21, driven by expanded geographical reach and increasing individual plant capacity. Sales in China remains strong, representing 16% of the Group’s revenue. Thus, the volume of orders from China for the Aspiral systems includes the China Three Gorges Group, new provincial partner Yangzhou Yijiang and existing three-volume partners Hunan Kaitian, Hubei ITEST, and Liaoning Huahong.

Regarding sales in the Southeast Asia region, Fluence has recently secured an order in Cambodia, the largest MABR plant globally, treating wastewater from 160,000 people and providing an excellent reference for the larger plant size range globally. Southeast Asia sales account for 31% of the Group’s revenue.

For the rest of the world, Fluence has sold seven Smart Products Solutions plants to Caribbean resorts during FY21. This sale is anticipated to lead to further hospitality business in the region, where Fluence will prioritise recurring revenue around the sale of water versus equipment sales. Another MABR sale occurred as well in the United Arab Emirates. This is also another opportunity for Fluence to demonstrate to local and potential clients the ability to safely recycle wastewater for irrigation in the Gulf Cooperation Council region, where reuse is gaining strong adoption.

FY21 was also the year when Fluence successfully executed its Ivory Coast Water Treatment Project and received payments of $51.8 million. In addition, the Company realised the release of $15.8 million in restricted funds from the advance payment received in the fourth quarter of 2020. Today, Smart Products Solutions is about 80% of the Company’s total earnings. Fluence expects to shift its revenue mix to a more balanced Smart Products Solutions, Recurring Revenue, and Custom Engineering to 65%, 25% and 10%, respectively.

Source: FLC

Fluence exhibits stable cash flows and a Strong cash position of $30-million-plus

Fluence has a very disciplined approach whilst taking care of its cash position. Hence, the Company has managed to keep its liquidity afloat in the last four years. Fluence’s Cash was $41.4 million at the end of the financial year. In addition, the Company held $23 million in short and long-term deposits, of which $21 million was applied as collateral for bank guarantees for the Ivory Coast Project. Most of these guarantees are expected to be released to the Company over 18 months.

Net Cash generated by Operating Activities in the fourth quarter of FY21 was $5 million and $11 million redemptions of a short-term investment. Collections during the fourth quarter were $33 million, of which approximately $14.4 million was received from the Ivory Coast Project. Revenue in the fourth quarter of FY21 was $43.5 million. The operating expenses in Q4-2021 were 5% lower than in Q4-2020. During the quarter, Fluence amended its Loan Agreement to, among other things, secure an additional US$10 million from Upwell Water LLC to fund its pipeline of recurring revenue projects and working capital, and bring the existing Upwell facility to $30 million. The Maturity date for any funds that are not utilised for projects has been extended by one year to July 2024.


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We project the Company’s revenue to remain unchanged, with a flat growth at 0.42% CAGR from FY22 to FY23. Accordingly, Fluence’s cash position will remain above $30 million.

Fluence is appointing a 35-year wastewater industry veteran as its new CEO

Fluence has appointed Thomas Pokorsky as its new CEO and Managing Director. The previous CEO, Richard Irving, is returning as the Chair. We think that appointing Mr Pokorsky is a wise move from Fluence. Hence, Thomas Pokorsky has significant experience in the wastewater treatment industry, most notably in building up the profitability of companies before and selling them. Furthermore, he has 35 years of executive experience, plus 15 years as a CEO in the US, but most importantly, his repertoire spans across China and Europe. Also, Mr Pokorsky has a remarkable history of growing public and private businesses that show returns up to 10 times higher and internal rates of returns up to 50% higher. In 1999, he became the CEO of Water Pollution Control Corporation, where he doubled revenue and profits before negotiating its sale. The Company was sold to ITT industries, which then used Pokorsky to help grow its Advanced Water Treatment group from $60 million to $350 million in just four years. Pokorsky then founded another wastewater treatment company, Nexom, and grew annual revenue growth by 25% before the Company was sold.

We think that Pokorsky joining as Fluence’s CEO is a positive outlook for the Company. Hence, the market has reacted positively to the announcement.

Two proven product lines to drive growth

We like Fluence because the Company can provide decentralised solutions to large-scale plants and cost-effective desalination for potable water and industrial needs. Many communities, water authorities, industries, and private companies are turning to desalination to ensure a consistent, reliable, and safe supply. Fluence has decades of experience in the financing, design, construction, and operation of desalination plants. The Company’s value derives from its unique offer of Smart Packaged desalination solutions such as Nirobox and Niroflex for municipal, commercial, and industrial clients.

Source: FLC

Furthermore, Fluence technology is unique. Hence, the Company provides pre-engineered and custom-designed desalination plants that reliably deliver safe drinking water and high-quality process water to industrial operations. A water treatment solution that is in high demand globally. Accordingly, we forecast Fluence’s revenue to reach $104 million by FY24. We expect the EBITDA to be superior to $10 million, which will support a stable annual free cash flow of $4 million to $7 million in the next 5-year period.

Technical Analysis

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FLC has rebounded above the multi-year support level of 19 cents. This level is a key support level and represents December 2015 gap and the subsequent bull run towards $1.19 all-time high, reached in October 2016. Since then, FLC shares have been trapped in a multi-year bearish trend, down 83.4%. However, last month, FLC appeared to find its bottom at 15 cents and has rallied back to the key level of 19 cents per share. Year-to-date, Fluence shares have gained 30%. We think it could be the right time to catch FLC’s rebound.

Key price levels

We have witnessed solid volume inflows on the 8th of February before the Company’s Earnings report on the 1st of March. The sentiment has turned from negative to positive as FLC broke above the 200 daily moving average. The key price levels to monitor are:

  • 15 cents
  • 19 cents

Volume and momentum

Volume decreases since the last 200-day with the 20-day volume average down by -42.2%. The price action is bullish in the near term, evolving between 19 cents and 22 cents per share.

Trade consideration

  • Market participants might be interested in entering at key support levels: 19 cents and 20 cents.
  • Primary target price above 25 cents per share
  • Secondary target price at 30 cents per share
  • Consider reducing exposure below 17.5 cents
  • It is recommended exiting the trade below 15 cents


The conditions are now met to support FLC’s return to a bull run. Fluence reported strong numbers for a second consecutive year and has met its published guidance. The Company’s strong revenue growth in Smart Product Solutions, MABR wastewater solutions adoption, and sales growth outside China looks set to support another year of positive underlying EBITDA, thus pushing FLC cashflows higher. All in all, FLC is an undervalued company in a niche market with the potential to capture an addressable market estimated at $118 billion. A speculative “Buy” for us.

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