Weekly Reports | Jun 01 2020
This story features AERIS ENVIRONMENTAL LIMITED, and other companies. For more info SHARE ANALYSIS: AEI
The New Criterion's Tim Boreham highlights established environmental hygiene companies benefiting from the virus.
By Tim Boreham, Editor, The New Criterion
No more grubby business as environmental hygiene becomes the new normal
One of the Great Unanswered Questions of the coronavirus pandemic is whether improved personal hygiene will become the entrenched norm, or whether mum’s advice about proper hand washing will be discarded like last night’s fetid dish water.
The issue is even more topical given millions of workers will be trickling back to their offices, where lift buttons and toilet doors loom as potential petri dishes for microscopic horrors.
Aeris Environment ((AEI)) chairman Maurie Stang has no doubt the populace will not revert to its grubby ways. “Appropriate hygiene will be the new paradigm,” he says. “We live in a world with tight transport links and we saw how quickly the pandemic spread.”
Stang’s words might seem self-serving given Aeris’s leading presence in “environmental hygiene”, which covers building-wide aspects such as air conditioning systems, mould and dust prevention, odour control and anti-corrosion.
And, yes, Aeris makes a surface disinfectant with specific efficacy claims about the SARS-Cov-2 virus. As with the flash cars in Memphis Raines’ one night crime spree, the clingy bugs are Gone in 60 Seconds.
But to accord credit where it’s due, Aeris was in the heavy-duty disinfectant game long before terms such as COVID-19, curve flattening and herd immunity entered our lexicon.
Aeris was also the top performing stock of the small ordinaries index in the March quarter, up from 28c to 64c, or 133%. At the time of writing the stock traded at 75c.
Stang acknowledges that when it comes to COVID-19 linked sanitiser plays, Aeris is not exactly lonely. Your columnist counts at least eight ASX-listed ones, some of which have pivoted from food production to stuffing bottles with the alcohol-heavy hand prophylactic.
But despite the bottom line benefits, Stang would be as happy as anyone to see pandemic dissipate. “Our technology is best suited to the entire chain of building hygiene,” he says.
“The pandemic will separate companies with knowledge and skill from those that will be a little bleep and disappear.”
Aeris sprung from the private Novapharm Research, of which Stang is a director, as did the wildly successful Stang-chaired medical sterilisation play Nanosonics ((NAN)).
He says the company first focused on indoor air quality and then other aspects of building hygiene, acquiring clients with the bottom-line message that cleaner ducts engender better energy efficiency.
“We look at the rhythm of a building,” he says. “Whether it is a kitchen cool room or ICU (intensive care unit), they all have common problems.”
“Common problems” include mould, which sounds benign but is as injurious to health as asbestos, if not worse.
Aeris demonstrated its mould-busting chops after the Townsville floods, when it became one of the few mould remediators accredited by the main insurers.
Clients include the owners of the 101 Collins ‘tower of power’ in Melbourne, Rio Tinto, Woolworths, the Accor hotel chain and Exxon Mobil.
Aeris recently won a US military contract to clean up the heating cooling and ventilation systems at 50 military bases – which goes to show the worst enemies are the invisible ones.
As for dreaded virus, Aeris advised Carnival Cruises on cleaning up the stricken Diamond Princess which ended up in quarantine at the Japanese port of Yokohama.
Sales of the bug-busting Aeris Guard Active helped Aeris achieve bumper results: March quarter turnover of $4.02 million compared with $3.2m in the entire December half, with a $1.02m surplus.
The company booked revenue of $4.15m in the month of April, taking the full year run rate to more than $13m. A deal with a Chinese consortium, unveiled this week, will deliver an additional minimum $4m of revenue in the first year.
Not wanting to waste an opportunity, in April the company raised $12 million in a placement at 43c apiece, at a stingy -6.8% discount.
Despite that, the raising was keenly supported by instos including Perennial Value, Ellerston and Moelis joining the hitherto retail-oriented register.
Maurie and his brother Bernard own 16% of the company.
Meanwhile, Aeris has turned its attention to bioactive (disinfectant) paper towels and biodegradable disposable wipes. The latter are intended to replace the half a billion plastic wipes are disposed of annually, with many of them forming the grotesque ‘fat bergs’ that block sewers in big cities.
“Initial shipments of the all-Australian manufactured eco wipes attracted such demand in China as so sell out the entire first shipments,” Stang says.
Stang admits the company has also made mistakes, including bypassing traditional distribution channels in the (mistaken) belief its technology would speak for itself in a direct sales model.
“But we are confident Aeris will be another success story. Our prospects are second to none.”
Cleaning up elsewhere
The sanitiser upstarts aside, Aeris is roughly comparable with a slew of stocks involved in broader environmental remediation.
For instance engineering house Cardno ((CDD)) is involved in big ticket environmental and sustainability projects globally, as well as geotechnical work.
Formerly the geothermal explorer Hot Rocks, HRL Holdings ((HRL)) last year merged with the private Octief, which is involved in dust, noise and vibration management and sampling water and soils for toxins.
The Chinese focused Phoslock warrants special mention for managing to raise $12 million in a placement in early April, followed by $15m in an oversubscribed share purchase plan. Both were struck at 50c, a -15%.
Phoslock’s shtick is that China is back to work and more than ever focused on cleaning up its sullied waterways, especially in rural China. Of the company’s forecasts calendar 2020 sales of $50-70 million, $40-55m are slated to derive from Middle Kingdom activities.
Speaking of China and water, the New York based Fluence this week struck a deal to sell its low energy aeration units to the Three Gorges Group, which is charged with cleaning up the Yangtze River’s water quality across eleven sprawling provinces.
The value of the initial pilot unit is a mere $US70,000 but there’s expected to be lucrative flow-on work (excuse the pun).
Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.
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