We have uncovered a company in a hot sector with a solid product line, operating in a high growth market, and producing strong financial results. This small company is barely on investor’s radar, but not for long. Euro Tech Holdings Company Limited (NASDAQ: CLWT).
Current price $3.50/share (52-week range $2.70 - $5.65)
Tiny float of 913 thousand shares (2.06M outstanding)
Insiders own 61.5% of the outstanding shares
Book value is $7.49 per share
Profitable company with low debt
Levered Free Cash Flow (ttm) $724.25k
Euro Tech markets environmental monitoring instruments, analytical instruments, and testing equipment for the air, water, and energy markets (more product details below). Euro Tech is headquartered in Hong Kong and operates there and throughout China. In addition to its own products, Euro Tech distributes products from companies such as Siemens, Budenberg, Hioki, and LaMotte, along with many others. Through its subsidiaries, the company also offers environmental engineering services. The Company has 80 employees, and distributes its products to approximately 1,000 customers.
The latest Five-year plan of the People's Republic of China (PRC) on environmental protection, the problem of clean water shortages, and polluted air, have generated growth potential for environmental equipment and services in China. The current 5-year plan could be a significant catalyst for CLWT.
In 2017 Euro Tech began plans to manufacture Ballast Water Treatment Systems (BWTS). Invasive Aquatic Species in ship’s ballast water is an issue in shipping industry. Under IMO’s “International Convention for the Control and Management of Ship’s Ballast Water and Sediments”, ballast water treatment systems on board ships have become critical. The BWTS technology could be a significant catalyst for CLWT.
According to Markets and Markets, “the environmental monitoring market will be worth $19.56 billion by the year 2021, growing at a CAGR of 7.7%. Rapid industrialization in Asia-Pacific countries (such as China and India), and stringent environmental regulations, are stimulating the growth of the environmental monitoring market in the Asia-Pacific region.” The rapid growth in the CLWT markets could be another significant catalyst for CLWT.
In 2017 the company began selling its products online (www.yibaynet.com.cn). This could be realized in the next earnings report.
Trillium Small Cap Tactical Fund LP (New York) owns 5.79% of the outstanding shares (as at 5-25-17).
Conclusion: Euro Tech has several potential catalysts working in its favor. The growth in the environmental control markets, particularly in the PRC may be the strongest.
The company has YOY (2015-2016) revenue growth of 22.8%. 2016 revenue was over $22 million. We expect 2017 revenues could be significantly higher. The company has sufficient cash on hand, and operating cash flow, to finance operations and ramp up revenue. Price/sales ratios under 1.0 are generally considered a value metric. CLWT has a P/S ratio of .32, this metric alone shows that CLWT could support a share price of about $11.00.
Companies operating in high growth markets, with strong financial fundamentals, and extremely low floats are rare opportunities.
The high level of insider holdings, and the Trillium investment show strong faith in future performance.
We believe CLWT could deliver a strong return in the near term.
Chart: On Tuesday, December 19, 2017, CLWT was trading at $3.55. The shares have crossed their 200-day moving average of $3.42 and are fast approaching their 50-day moving average of $3.59. We note that the trend line is decidedly bullish.
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