Gambling Greenie June 13 2019


A clean profit and a nasty crack 

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PET OF THE MONTH in the Gambling Greenie's portfolio is Phoslock Environmental Technologies (ASX code PET), the water-cleansing outfit that was recently given a big pat by the Chinese authorities.

The Science and Technology Promotion Centre, a division of the Chinese Ministry of Water Resources has  included Phoslock 's phosphorous removal technology as a product of practical technology in water conservation and remediation..

The Ministry is the highest administrative organisation in the water conservation business in China, managing most of the 2,685 large lakes and 98,000 reservoirs across the country.

Last month a trial of Phoslock on a heavily polluted 34 sq km lake in South West China was highly successful, cutting phosphorous by 75 per cent.  As a result , the authorities have placed an initial order worth about $1 mln for further treatment of the lake, and it is expected that if this is successful approval will be given for similar monthly dosages thereafter.  And there are eight more very large lakes in the area, all heavily polluted.

Phoslock (ASX code PET) is already ramping up production to meet the expected demand.  No wonder the shares are up 43 per cent in little over a month.

The GG has more than doubled his money on this one.  He is tempted to follow the old adage to "let your profits run".  But his cash balance is low, the stock market as a whole is looking shaky, and it is true that "no one ever went bust by taking a profit".  He has, however, hedged his bets, selling 2,000 of his PETs.  That leaves him with 3,000 PET at an average cost of less than 9c each.

 YOU HAVE BEEN WARNED

THE GAMBLING GREENIE  is licensed by the South Australian government to drive a moter vehicle. He is not an adviser and has no links to the financial services industry. If he finds a guaranteed way of making serious money on the stock market, he won’t tell anyone.

He may at times own shares mentioned in the column, but does not trade in any such shares for at least two working days before or after publication.

Sadly, cracks have appeared in his concrete investment.  Shares in Eden Innovations, (ASX code EDE), which produces a concrete-reinforcing additive containing carbon nanotubes, dropped 60 per cent in a month.  That's a serious crack.

Investors started to crack on May 23rd when the company released a "market clarification" to the stock exchange, admitting that KC Industry Co in Korea had decided not to use EdenCrete in its pre-cast operations, "due to limited early strength gains after 12 hours".

A second crack is that tests at Deakin University appear to have ruled out the hope that high strength EdenCrete would reduce or do away with the need for steel reinforcing.

What has really miffed the Gambler, however, is that the company knew of the Korean setback on March 26.  A shareholder presentation released by Eden to the market on 25th of May lists the July 2018 agreement with a Korean precast company as one of its achievements, but there is no mention in that presentation that the Korean company had decided a month earlier not to use EdenCrete.

Indeed, under the heading "2019+" it says "Q1/Q2 -First Korean Sales of EdenCreteŽ possible."  Hmmm.

The quarterly activities report for the three months to the end of March, released at the end of April, refers to "highly encouraging" results from Korean university trials, and says only that that discussions with a number of Korean companies "are continuing".

That quarterly activities report stressed the huge jump in sales in the 2018 financial year.

The quarterly figures, however, suggest that sales may have slowed.  Second quarter receipts were just over $US 1mln, third quarter $US 680,000.  No revenue forecast has been given for the rest of the financial year, but the expected cash outflow shows operating and manufacturing costs for the three months to the end of June are expected to drop to $US 550,000 from $ US 640,000 in the March quarter.  Admittedly a large single order can make a big difference to quarterly figures, but that doesn't look like a company boosting production to meet rising demand.

In a "Global sales and marketing agreement update" released on June 13, Eden admits that " the commercial rollout of EdenCreteŽ both in the USA and elsewhere to date has not been as rapid as originally anticipated".

It adds that progress has been steady, and sales growth is expected to "increase significantly".

It would need to. 

The company is projecting a cash outflow of some $2.95 mln in the three months to the end of June this year.  Assuming sales match the previous quarter (a big ask, given the drop in expected manufacturing and operating cost), Eden will have a net outflow of some $1.2 mln and end the financial year with around $4.5 mln in the bank.   At that rate, it would run out of money in a year, despite getting a $7 mln injection from shareholders in January this year.

Yes, the company expects to be cashflow positive next year, yes, there are talks with a major company interested in its method of producing hydrogen, yes, something may come of using nanotubes to strengthen plastic, yes there are repeat orders for EdenCrete from US highway authorities, yes, the shares seem to have stablised at their 12-month low, yes, there is renewed interest in Eden’s Optiblend hydrogen mix to cut emissions from heavy diesel engines, but no, the Gambler is not entirely convinced that Eden shares are going anywhere fast.

He will keep an eye on Eden, and he wishes them well, but with a heavy sigh, he is cutting his EDE losses this time.  There are other competitors in the carbon-reinforced concrete business, and he will put his cash from Eden towards investing in one of its rivals, Talga Resources (TLG).


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