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Capital Markets: Desalination Firm, June 2016

Consolidated Water Company (CWCO) stock price is now 39.5% above its expected price.  The stock price now stands at 2.3% above the level prevailing 52 weeks ago. The stock price stands slightly above the 10-week exponential moving average.  The recent run-up in price reflects anticipation that the company’s consortium would be selected by the State of Baja to construct a 100,000-AF/year seawater desalination plant at Rosarito Beach. Consolidated was part of the consortium selected by the State of Baja.

Consolidated Water Co (06-2016)_WEB

The price jump in early spring followed a public story regarding a successful demonstration by BioLargo validating the company’s technical claims that their AOS filter costs 1/20th the nearest technical competitor, with greater than 100 times the efficacy (disinfection) and greater than 10 times faster than any technical competitor. Consolidated was identified in a wire story as a potential beneficiary from adoption of the AOS filter in its desalination projects.

The stock had been on an upward trend thanks to the bump in its stock price in mid-March 2015 following an SEC 8k filing stating that it has found an equity partner for a 100,000-AF desalination plant at Rosarito Beach. It also stated that it anticipates entering into a definitive agreement with the State of Baja by February 2016.

CWCO stock had been under-performing relative to the returns forecasted by the Capital Asset Pricing Model by an annual rate of 4.1% from January 2006 through December 2012. The company’s stock performed strongly through fall 2013 due to a run of three quarters where earnings significantly outpaced market expectations. The stock peaked in mid-October 2013 when 3rd quarter earnings fell significantly and has been on a declining trend. The company entered into a Memorandum of Understanding in November 2012 with the Otay Water District to sell at least 20 million gallons per day and up to 40 million gallons per day from a proposed seawater reverse osmosis desalination plant with a capacity of 100 million gallons per day located in northern Baja.