Thanks Oscar, I have a question regarding "plumbers will usually break the wall until they find the leak while Water Intelligence uses technology to pinpoint the exact location of the leak and fix it with minimal damage (this is highly appreciated by the customers). " I am not sure if this true all over the world. Because I recently had a clogged drain in Munich, Germany. And the plumber company we found on the housing admin list, did have one those Sewer Cameras that you can buy on Amazon etc. for 100-1000€. It is a big initial investment into capex, but I think brick-and-mortar plumbers are already using this.
Of course this type of technology is getting more and more adopted and is not exclusive of Water Intelligence. This company does not have a substantial moat or competitive advantage. They do have ecomomies of scale in a very fragmented industry and lots of capital allocation opportunities. So yeah, you are totally right there!
Hi Oscar - excellent write up! Any indication if the company will stop using equity to fund new acquisitions and instead use FCF/debt? I understand the acquisitions are per share accretive given the multiples they are buying at but seems would be better for shareholders if they limited the share dilution and even bought back shares.
Also I noticed you can’t buy shares on interactive brokers - what platform did you buy them on?
No idea. I would love to see them use some debt instead of equity now that they are trading at lower multiples. Would be a great question for Patrick. Last time they issued shares was at 1000 GBX so maybe he is reluctant to issue again. I think this year they are focusing on organic growth and not so much on the acquisitions.
I bought my shares at Degiro (available in Europe). It sucks that they are not available at IB... Many people have emailed them asking for it, but I think no one has gotten any response.
Thanks for the write-up, interesting company and I like the industry a lot. Do you have any thoughts on the listing? It seems odd to me to have the shares quoted in London when the majority of the business is in the United States. Especially if DeSouza is going to issue stock to fund more acquisitions or franchise repurchases, it'd seem having a Nasdaq listing would help generate more shareholder value.
I agree about the listing. In Quim's writeup (link below, page 11) he said they might be looking to listing in the OTC. The reason for listing in the AIM is that it is lower cost. But I agree it is not the best situation. Keep in mind that when they listed they were a much smaller company so costs were very important to keep in mind.
Hi Oscar. First of all, thank you and congratulations for this awesome work. Water Intellingence is a great company I have been following for some time. I have a cuestion about the competitive advantages... What prevent other companies to start using the technology WI uses? Or even small plumbers buying this technology could be a problem for the competitive advantage of WI.
Thanks! :) I think that question was asked to Patrick in the interview. He said they could copy them locally, however, they would not have the scale, geographical reach, expertise and trust that WI has developed over decades. But I would guess not much would prevent a competitor from copying them. The moat is not so big, but the execution is great. The thing is that the market is so big and fragmented, and also growing, that this does not bother me much!
Hi again. I have another cuestion. I can't find any quarterly results but the trading updates... I think there are no conference call or results presentation quarterly. Is that right? Thanks
Correct! In UK there are only half year and full year results. For quarters they only do trading updated with some numbers. They also post an update on every acquisition. There are no conference calls either
First of all, thanks for sharing with us this enormous work you did. I am studying the company and I don't understand how the management use money with shares buyback. I saw in insider transactions that they made a buyback in a high PER valuation, do you know why they proceed that way?
I watched CEO interview with Quim and DeSouza said that he operates their business as a long term value company, however sounds odd if use of that way capital allocation.
I think the buybacks that have been done were to offset some of the dilution of the stock granted to employees (not the stock issued for acquisitions). It is a very low amount, 470K in 2021 for exmaple. I agree this is not the best way to deploy capital, but it is not significant compared to the FCF and the capital depolyed for acquisitions (6.22M in 2021).
Hello Oscar, thank you for the article. I njoyed reading it. What is your view on the age of the CEO, did you find any signs of retirement planning? With very small caps the role of the Owner/Ceo can also become a reason for a discount as he is very important in terms of leadership and het has 37 %?
Lo primero agradecer el haber compartido la tesis ya que ayuda mucho a los que estamos empezando con la empresa,
Lo segundo, prometo haber intentado escribir en inglés pero me he dado por vencido y lo hago en castellano ya que me cuesta mucho el idioma, espero no te importe,
Ya voy al lio con WATR, estoy analizándola y me llamo la atención el aumento del EBIT de 2019 a 2020 (pasa de un8,3% al 12%) y mirándolo en el informe anual veo que en ese año las vtas subieron un 17%, los COGS un 18,2% y el aumento de EBIT viene principalmente debido a un aumento de Other adminitrative cost (que no lo descomponen en ningún lado) de solo un 10%.
Sigo mirando a ver como se comporta en años posteriores ya que se mantiene el margen EBIT del 12% y veo:
Que en 2021 vs 2020 crecen las ventas un 43% pero los COGS solo lo hacen un 1% (este dato me tiene más que intrigado, porque no me entra en la cabeza como puede ir un crecimiento tan dispar del otro) simplemente indican al respecto “During the year ended 31 December 2021, an expense of $8,964,486 (2020: $8,830,250) was recognized in the Consolidated Statement of Comprehensive Income, including business to business expenses of $8,288,217 (2020: $8,024,178). There has been no write down of inventories during 2021.”
Sigo comparando 2021 vs 2020 y me llama la atención que en este caso Other administrative Cost aumenta un 60% (casi nada)
Sigo y comparo H1 2022 vs H1 2021
Las ventas crecen un 43% los COGS un 2,2% y los Other adminitrative cost un 65%,
Tras todo este tostón mi pregunta es ¿sabemos que incluye COGS para que creciendo tanto las ventas esa partida apenas crezca? ¿Qué incluye esos Other administrative cost para que los crecimientos de estas partidas sean tan dispares año vs año y con respecto al crecimiento en Ventas (en los años anteriores a los comentados también pasa)?
Por otro lado me gustaría saber tu opinión de porque esta caída tan importante que lleva desde máximos, tras analizarla me da unos buenos retornos a 3 – 5 años, pero me sorprende la continuada bajada que lleva. Como puntos negativos que quizás expliquen ese descenso puedo ver: la gran dilución (que no es problema al generar un mayor retorno), las importantes cantidades de dinero que están empelando en comprar franquicias y subsidiarias (esto lo entiendo como Capex de crecimiento) y por supuesto su tamaño y liquidez
Buenas! No considero que yo sea la persona adecuada para responder a tus preguntas. Eso se lo deberías preguntar al investor relations de la empresa. Si puedes compartirme su respuesta estaré encantado. De todas formas:
-Al ser una empresa de servicios y no de venta de productos, los COGS son muy bajos, como has podido ver. Al no ser una empresa de venta de productos, el COGS representa los gastos que tiene una empresa en el proceso de proveer el servicio a los clientes, por lo que no tiene que crecer proporcionalmente a las ventas. Es probable que esto tenga mucho que ver con las franquicias tambien, que es un segmento decreciente. El IR te lo aclarará mejor que yo.
-Other Administrative costs crecen mucho ya que incluyen los sueldos, y cuando WATR recompra una franquicia de ALD, los sueldos pasan a su income statement.
Basicamente estás viendo 2 modelos de negocio (franquicias y owned locations) fusionados en uno y ese es el motivo por el que parece extraño.
Si te contestan te agradezco que lo compartas por aqui :)
No obstante, entiendo que dentro de los COGS no solo entra la materia prima sino también el salario de los operarios necesarios para realizar el trabajo,
Thanks Oscar, I have a question regarding "plumbers will usually break the wall until they find the leak while Water Intelligence uses technology to pinpoint the exact location of the leak and fix it with minimal damage (this is highly appreciated by the customers). " I am not sure if this true all over the world. Because I recently had a clogged drain in Munich, Germany. And the plumber company we found on the housing admin list, did have one those Sewer Cameras that you can buy on Amazon etc. for 100-1000€. It is a big initial investment into capex, but I think brick-and-mortar plumbers are already using this.
Of course this type of technology is getting more and more adopted and is not exclusive of Water Intelligence. This company does not have a substantial moat or competitive advantage. They do have ecomomies of scale in a very fragmented industry and lots of capital allocation opportunities. So yeah, you are totally right there!
Hi Oscar - excellent write up! Any indication if the company will stop using equity to fund new acquisitions and instead use FCF/debt? I understand the acquisitions are per share accretive given the multiples they are buying at but seems would be better for shareholders if they limited the share dilution and even bought back shares.
Also I noticed you can’t buy shares on interactive brokers - what platform did you buy them on?
Hi! Thanks!
No idea. I would love to see them use some debt instead of equity now that they are trading at lower multiples. Would be a great question for Patrick. Last time they issued shares was at 1000 GBX so maybe he is reluctant to issue again. I think this year they are focusing on organic growth and not so much on the acquisitions.
I bought my shares at Degiro (available in Europe). It sucks that they are not available at IB... Many people have emailed them asking for it, but I think no one has gotten any response.
Thanks Oscar - appreciate the response! Great job on your blog - big fan of your posts and style of investing.
Thanks! Great to hear! I am still learning and adapting my style though. I could be wrong so please do your own research!
Thanks for the write-up, interesting company and I like the industry a lot. Do you have any thoughts on the listing? It seems odd to me to have the shares quoted in London when the majority of the business is in the United States. Especially if DeSouza is going to issue stock to fund more acquisitions or franchise repurchases, it'd seem having a Nasdaq listing would help generate more shareholder value.
I agree about the listing. In Quim's writeup (link below, page 11) he said they might be looking to listing in the OTC. The reason for listing in the AIM is that it is lower cost. But I agree it is not the best situation. Keep in mind that when they listed they were a much smaller company so costs were very important to keep in mind.
http://www.dracoglobal.es/en/wp-content/uploads/2020/09/WaterIntelligence_Tesisinversi%C3%B3n.es_.en_.pdf
Hi Oscar. First of all, thank you and congratulations for this awesome work. Water Intellingence is a great company I have been following for some time. I have a cuestion about the competitive advantages... What prevent other companies to start using the technology WI uses? Or even small plumbers buying this technology could be a problem for the competitive advantage of WI.
Thanks in advance.
Thanks! :) I think that question was asked to Patrick in the interview. He said they could copy them locally, however, they would not have the scale, geographical reach, expertise and trust that WI has developed over decades. But I would guess not much would prevent a competitor from copying them. The moat is not so big, but the execution is great. The thing is that the market is so big and fragmented, and also growing, that this does not bother me much!
Hi again. I have another cuestion. I can't find any quarterly results but the trading updates... I think there are no conference call or results presentation quarterly. Is that right? Thanks
Correct! In UK there are only half year and full year results. For quarters they only do trading updated with some numbers. They also post an update on every acquisition. There are no conference calls either
Hello Oscar!
First of all, thanks for sharing with us this enormous work you did. I am studying the company and I don't understand how the management use money with shares buyback. I saw in insider transactions that they made a buyback in a high PER valuation, do you know why they proceed that way?
I watched CEO interview with Quim and DeSouza said that he operates their business as a long term value company, however sounds odd if use of that way capital allocation.
Thank you!
Hey! Thanks for your comments!
I think the buybacks that have been done were to offset some of the dilution of the stock granted to employees (not the stock issued for acquisitions). It is a very low amount, 470K in 2021 for exmaple. I agree this is not the best way to deploy capital, but it is not significant compared to the FCF and the capital depolyed for acquisitions (6.22M in 2021).
Hello Oscar, thank you for the article. I njoyed reading it. What is your view on the age of the CEO, did you find any signs of retirement planning? With very small caps the role of the Owner/Ceo can also become a reason for a discount as he is very important in terms of leadership and het has 37 %?
Buenos días Oscar,
Lo primero agradecer el haber compartido la tesis ya que ayuda mucho a los que estamos empezando con la empresa,
Lo segundo, prometo haber intentado escribir en inglés pero me he dado por vencido y lo hago en castellano ya que me cuesta mucho el idioma, espero no te importe,
Ya voy al lio con WATR, estoy analizándola y me llamo la atención el aumento del EBIT de 2019 a 2020 (pasa de un8,3% al 12%) y mirándolo en el informe anual veo que en ese año las vtas subieron un 17%, los COGS un 18,2% y el aumento de EBIT viene principalmente debido a un aumento de Other adminitrative cost (que no lo descomponen en ningún lado) de solo un 10%.
Sigo mirando a ver como se comporta en años posteriores ya que se mantiene el margen EBIT del 12% y veo:
Que en 2021 vs 2020 crecen las ventas un 43% pero los COGS solo lo hacen un 1% (este dato me tiene más que intrigado, porque no me entra en la cabeza como puede ir un crecimiento tan dispar del otro) simplemente indican al respecto “During the year ended 31 December 2021, an expense of $8,964,486 (2020: $8,830,250) was recognized in the Consolidated Statement of Comprehensive Income, including business to business expenses of $8,288,217 (2020: $8,024,178). There has been no write down of inventories during 2021.”
Sigo comparando 2021 vs 2020 y me llama la atención que en este caso Other administrative Cost aumenta un 60% (casi nada)
Sigo y comparo H1 2022 vs H1 2021
Las ventas crecen un 43% los COGS un 2,2% y los Other adminitrative cost un 65%,
Tras todo este tostón mi pregunta es ¿sabemos que incluye COGS para que creciendo tanto las ventas esa partida apenas crezca? ¿Qué incluye esos Other administrative cost para que los crecimientos de estas partidas sean tan dispares año vs año y con respecto al crecimiento en Ventas (en los años anteriores a los comentados también pasa)?
Por otro lado me gustaría saber tu opinión de porque esta caída tan importante que lleva desde máximos, tras analizarla me da unos buenos retornos a 3 – 5 años, pero me sorprende la continuada bajada que lleva. Como puntos negativos que quizás expliquen ese descenso puedo ver: la gran dilución (que no es problema al generar un mayor retorno), las importantes cantidades de dinero que están empelando en comprar franquicias y subsidiarias (esto lo entiendo como Capex de crecimiento) y por supuesto su tamaño y liquidez
Mil gracias por adelantado,
Buenas! No considero que yo sea la persona adecuada para responder a tus preguntas. Eso se lo deberías preguntar al investor relations de la empresa. Si puedes compartirme su respuesta estaré encantado. De todas formas:
-Al ser una empresa de servicios y no de venta de productos, los COGS son muy bajos, como has podido ver. Al no ser una empresa de venta de productos, el COGS representa los gastos que tiene una empresa en el proceso de proveer el servicio a los clientes, por lo que no tiene que crecer proporcionalmente a las ventas. Es probable que esto tenga mucho que ver con las franquicias tambien, que es un segmento decreciente. El IR te lo aclarará mejor que yo.
-Other Administrative costs crecen mucho ya que incluyen los sueldos, y cuando WATR recompra una franquicia de ALD, los sueldos pasan a su income statement.
Basicamente estás viendo 2 modelos de negocio (franquicias y owned locations) fusionados en uno y ese es el motivo por el que parece extraño.
Si te contestan te agradezco que lo compartas por aqui :)
ok, así lo hago y te comento
No obstante, entiendo que dentro de los COGS no solo entra la materia prima sino también el salario de los operarios necesarios para realizar el trabajo,
Un saludo,