Fluence (AX:FLC) Q2 statement confirms FY18 guidance and highlights encouraging progress in China. The company still has a lot to deliver in H218, but the fundamentals of its market (the supply of distributed water/wastewater treatment) look very attractive, in our view.
On track to double
Fluence reiterated guidance of $105-115m in revenues for FY18, a near doubling of pro-forma sales y-o-y. After reporting $22.6m in Q2, the mid-range of this target implies revenues of $77m in H218 ($38.6m per quarter). The timing of revenue recognition on large contracts is hard to predict and, following a miss in Q417, investors may need more evidence of delivery. Nevertheless, this forecast is underpinned by a revenue backlog of $84m, $49m of which is expected to be recognized in H2 (predominantly the San Quintin and PDVSA projects), and a very healthy pipeline of business yet to reach the order book.
China momentum building…
The Chinese market has huge long-term growth potential in our view (see China Water Affairs). Fluence has been steadily building up its presence by signing up regional partners and demonstrating the cost effectiveness of its technology. Q2 provided significant evidence of commercial traction with a further three new partners delivering their first sales. Revenue from China is likely to be modest in FY18 (low single-digit millions) but has the potential to expand dramatically in FY19 and beyond, in our view.
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