Amiad Water Systems (LSE:AFS) released its interim results for the first half of 2020 a couple of weeks ago. It’s the leading global producer of water treatment and filtration solutions. And it reported a fairly positive outcome considering the impact of Covid-19 on its operations. Is now a good time to invest?
Revenue fell by nearly 12% to $51.5m (it reports in USD) but margins, profitability and cash improved. I think water stocks make an appealing investment and Amiad’s water filtration business has me interested.
Masters of filtration
A growing population and the extreme effects of climate change are driving the likelihood of increased water shortages globally. We need solutions and 57-year-old Israeli firm Amiad is playing its part.
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Amiad’s product offerings are used in water filtration systems all around the world. We can find them in micro-irrigation, membrane protection, wastewater treatment, hydroponics, cooling systems and seawater filtration. I expect many of these areas are going to be in higher demand as the world moves to solve water shortages, improve global food distribution and prevent climate change.
A prominent shareholder
Late last year FIMI Opportunity Funds, Israel’s largest group of private equity funds, moved to become the controlling shareholder in Amiad Water Systems. It did this by increasing its stake to nearly 40% after building a strong position over the prior 18 months and completing via a share subscription early this year. This brought net cash at 30 June of $12.2m to Amiad, allowing it to get rid of debt.
I think FIMI’s involvement is a positive sign the company will strengthen. FIMI’s founder and CEO Ishay Davidi now sits on Amiad’s board. He’s a prominent business figure in Israel and was in Dubai last week as part of a banking delegation to encourage commercial cooperation between the countries.
Amiad intends to use the capital raised towards implementing its five-year plan to drive growth, scale up production and access new products and markets. It’s already begun investing in future growth by introducing manufacturing automation to its metal departments and upping its research and development efforts. Earlier in the year, it signed a five-year agreement with Netafim. This is a precision irrigation company with a far-reaching global distribution network.
Is now a good time to invest?
I think Amiad looks an exciting company, but is now a good time to invest? The pandemic is having a global effect on business. It’s slowing farming, manufacturing and oil production, all of which are sectors Amiad sells to.
There’s the argument that economic uncertainty is suppressing share prices, and when the oil price recovers, opportunities for orders will increase. But being listed on AIM means it comes with risks. Its shares have seen extreme volatility over the past 10 years and don’t appear to have a lot of liquidity. The Amiad share price is down 14% year-to-date.
The board believes current market conditions could present acquisition opportunities and are looking to accelerate growth. Although uncertainty remains and full-year revenue is likely to be lower than 2019, water scarcity is real.
I believe Amiad could play a part in solving this problem, providing it makes the right deals and doesn’t get too heavily laden in debt. Whether this is now a good time to invest depends on your appetite for risk and your investment time horizon.
