Fearneley Securities published their research on Energy Recovery titled Sunny Days Ahead. Below is the Fearnley summary of the research. We are very bullish ERII. It is by far our largest position. The company has a technology, with which it succeeded in one industry and now they are trying to implement it into other industries. The stock is worth your further research. We believe that this could be USD100 stock in few years.

What’s new: Raising our TP on an accelerated earnings story and solid outlook.
Our take: Bright outlook is set to accelerate earnings drastically from both lower costs and higher revenues. Commercialization of new products could prove upside on valuation. Buy.
The outlook for the SWRO desalination market remains strong, despite the abrupt outbreak of COVID-19 and the subsequent impact on oil prices. This is apparent from ERII’s revenueguidance for 2021 and 2022, where the company expects a growth of 10%/20-25% respectively (FSest higher end). Further to this, ERII has rolled out product offerings for wastewater treatment/Zero Liquid Discharge (ZLD) which adds to long-term earnings potential in the Water segment. Also, since our last update a renewed bullish sentiment for US Onshore has amassed (frack fleets at ~150 YE’20 vs. c. 65 during the summer), adding support to the commercialization of VorTeq. We remain cautious on the VorTeq story but revert to our previous base case scenario valuation of USD 3/sh. Overall, we see sunny days ahead for ERII and raise our TP to USD 21/sh (USD 11/sh, 27.08.2020) on i) higher 2022 sales in the water segment, ii) increased valuation of Oil & Gas (previously negative valuation) and iii) aligning ourselves on cost guidance. Further value-upside from commercialization of new products could also be on the horizon. Buy reiterated. Upping estimates for ‘21/’22 and rolling out 2023We raise our EBIT estimates by USD 7m/21m for 2021/2022 on the back of lower OPEX guidance and higher revenue guidance in 2022, percolating favorably through the P&L. We also roll out our 2023 estimates, where we see EBIT of USD 57m and EPS of 74 cents (up 36%/35% vs. 2022) with continued growth in the Water segment (FSest 7.5% 2023 revenue growth) and the first year with positive EBIT contributions from the Oil & Gas segment (FSest USD 4m). Valuation – Upside without any value to new incubationsWe value ERII’s Water segment at USD 20/sh and the Oil & Gas segment at USD 3/sh. We deduct the NPV of corp. and R&D spend (USD 4/sh) and add back FSest USD 2/sh of net cash by YE’21 to derive at our SOTP valuation of USD 21/sh (28% upside from last close). As such, we continue to see upside in ERII without assuming commercialization of any of the company’s incubation projects. Buy.

Huddly, producer of conference room AI cameras and software has today road show presentations for Norway brokers. The company reported last week very good Q4 and FY numbers. See their www for the investor call and investor presentation. The company is out of the black out period – IPO syndicate members are now allowed to publish their research. I expect that this should happen this week. If that happens on a green day, the share price usually appreciates strongly. Huddly is a high growth company, we are bullish on Huddly and we bought more on todays selloff.


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