Sydney based water and environmental management firm Phoslock Environmental Technologies Ltd [ASX:PET] has seen its share price soar over the past six months. At time of writing, the share price is up 5%, to $1.47 per share.
Since the beginning of the year, shares have skyrocketed 300%, jumping from $0.35 to $1.45. July alone has seen the share price jump more than 33% as investors began to take notice.
What is behind PET’s success?
The PET share price spiked hard at the end of May after the company announced an initial order of approximately $1 million worth of Phoslock products to treat a heavily polluted lake in South West China.
Initial trials resulted in a 75% reduction of phosphorus over the first four days of application, preventing the growth of harmful algal blooms. These are detrimental to both aquatic and human life.
With the lake area roughly two-thirds the size of Sydney Harbour, PET expected regular monthly dosages will apply thereafter.
There are nine large lakes in the South West China area, all with major water pollution problems. According to the announcement, both the Provincial and Central Chinese governments are pushing to restore the water quality of these lakes in order to boost tourism and economic development.
In June, the company announced that Phoslock had been recognised by the Science and Technology Promotion Centre, a division of the Ministry of Water Resources of the People’s Republic of China. This is the highest administrative organisation in the water conservation industry in China.
The recognition meant that PET’s products would will now become part of domestic and international promotional activities arranged by the Ministry of Water Resources. This will include regions around China, Macao and Hong Kong , as well as other other countries that impact the One Belt One Road initiative.
What’s next for Phoslock?
Recognition and approval from Chinese authorities is always a big deal. The share prices of companies like The A2 Milk Company Ltd [ASX:A2M] and Blackmores Ltd [ASX:BKL] have often been at the mercy of Chinese authorities.
At the beginning of this month, Chinese Government authorities were so pleased with the results produced over the past months they awarded PET a contract to treat the entire Xingyun Lake catchment area.
Meaning PET’s application area has increased from 34Km2 to 371Km2, comprising of the lake, 14 rivers, waterways and reservoirs. The new project will require large tonnages of Phoslock product for at least several years.
The result is record cash flows from operations. This morning the company announced a record $10.7 million from operating net cash flow and a record $18.6 million in customer receipts.
The company currently has no debt and $18 million in the bank to fund operations, R&D and further expansion.
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