BRM.V - Biorem

[deleuze68]

This is an interesting, somewhat illiquid net-net company trading on the TSX Venture Exchange.

 

Biorem is a leading clean technology company that designs, manufactures and distributes a comprehensive line of high-efficiency emissions control systems used to eliminate odors, volatile organic compounds (VOCs) and hazardous air pollutants (HAPs). Biorem also offers Biogas Conditioning technologies specializing in biological treatment of hydrogen sulfide.

 

There are currently 38 million shares outstanding with a subsidiary of TUS Holdings owning just over 60% of the shares. TUS, a Chinese company, has an interest in a diverse set of companies engaged in the water, wastewater, solid waste and renewable energy sectors, with approximately $30B in assets. They currently have 2 directors on the Biorem board. TUS obtained this interest in 2016 from purchaing Biorem's convertible debt and subsequently exchanging it for common shares. The purpose of the transaction was to add a strategic partner in China to expand Biorem's market. Unfortunately the roll out in China has been slower than expected but this is expected to change in the coming year.

 

Currently about 80% of Biorem's sales are to the United States with the rest split between Canada and China. Biorem publishes their bookings quarterly which can fluctuate quite a bit. However for the last 2 years they have averaged out to about 6.5 million/quarter. Gross margins are around 25% with net earnings from operations coming in at around 5-6%. Last year they did 24.2 million in revenue with earnings of 1.7 million or 1.2 million after backing out a foreign exchange gain.

 

The stock is currently trading at 33 cents or 8x earnings. Backing out cash it is trading at 5x earnings. Backing out working capital it is trading at less than 2x earnings.

 

As of today,

 

Cash = 13.8 cents/share

Working Capital = 26.7 cents/share

No debt

 

Biorem today guided to a robust 4th quarter of bookings after a couple of soft quarters, and is optimistic that sales to China will start increasing significantly next year. As I mentioned the stock is somehwat lliquid so it has taken me a while (3 years) to accumulate a significant position but there are opportunites of increased liquidity now and then.

[deleuze68]

Biorem just announced yesterday their 2 biggest orders in China along with a nice order from the City of Chicago.

 

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BIOREM ANNOUNCES NEW ORDERS TOTALLING $5.7 MILLION AND CONTINUED CHINA EXPANSION

 

"Our focus for business development over the last couple of years has been primarily centred on China and we are beginning to see the results from all of that effort," said Derek S. Webb, president and chief executive officer. "In early 2019, management restructured our Chinese operations to more effectively leverage our core strengths into new business and growth opportunities. Our sales and engineering office in Beijing was moved closer to Tsinghua University to foster deeper co-operation on research and development on future projects. In addition, several new distribution partners were added to our network and these groups have been working hard with our sales team to uncover a number of new opportunities.

 

"These business development efforts have resulted in two new important orders in the Chinese market. The first order is for $2.6-million for a large waste water infrastructure project in the northeastern city of Tianjin. Design and fabrication is already under way and we expect project completion in early 2020. Biorem was selected for this high-profile project given our experience with high-efficiency air emissions abatement solutions in dense urban environments. The second project, valued at approximately $700,000, is with a large American food processor with manufacturing in Wuhan. This is a particularly important project as it uses this Chinese facility as a demonstration project for the effectiveness of biological solutions for their VOC reduction initiatives. The Biorem biological solution was chosen over a resource-intensive thermal oxidation alternative that was being considered for the facility. In this case, the client saw the long-term potential for reducing their overall corporate carbon footprint.

 

"The company continues to focus on high-value, high-profile projects in North America. We are pleased to announce a new order valued at $2.4-million for the City of Chicago. Consisting of three separate projects for their largest waste water facility, the selection of Biorem's technology was largely due to the proven performance and reliability of Biorem's engineered solutions.

[deleuze68]

It's been a minute and not much has happened in terms of share price but I believe this story just keeps getting better. I posted a more detailed and updated write-up here

 

And today some more good news came out with the successful completion of two VOCs abatement pilots, one with Samsung and one with a Saudi multi-national. Samsung at the conclusion of the trial ended up purchasing the unit. https://finance.yahoo.com/news/biorem-announces-successful-demonstration-projects-130000521.html

 

I will also note that I think Biorem's tech has been severely underestimated by the market. They outsource their manufacturing but all design and engineering is done in house. Reading through case studies and today's news, coupled with the growing backlog, it is clear that these are complex systems based on proprietary technology that do give them a competitve advantage. They are not buying widgets from China and then distributing them to multi-nationals and governments. It really is no different than Apple designing their chips in house and then outsourcing the manufacturing to a fab like TSMC.