Sembcorp Utilities Netherlands NV (NASDAQOTH:CCALF)

CAPS Rating: No stars


Player Avatar devoish (96.28) Submitted: 12/2/2009 8:24:25 AM : Underperform Start Price: $5.74 CCALF Score: +7.90

While this company makes money in the UK where it is a regulated water company, that and a small dividend is all the good news there is. They have been auhtorized a 4% annual rate increase for the next five years. Done.
Outside of the UK their business plan seems to be to promise Gov'ts they will invest a ton money building out water infrastucture, in the hope of charging more money than the customers have. They have been tossed from Tanzania, Mexico, and other countries. In S Africa they are being threatened with violence by people (freedom fighters) who will deliver on that promise. If the Chinese investment does not work out, China will toss them out of there too.
The succesful water utility model goes like this. Let the local gov't raise a bond they pay off with taxes to build the infrastucture. Market the concept (privatization) of efficient private companies vs wasteful Gov't spending while you wait until the local Gov't needs to raise taxes for any reason. Buy the infrastructure, for the price of the tax increase (not the value of the infrastructure) so elected officials can run on "holding the line on taxes" in their next campaign. then double and triple prices. For an example see Aqua America water in Nassau County vs the cost of public water service.
Until this company figures out how to get the public to pay for infrastucture so they can step in and profit later it is a safe pick for its UK operations and a loser for its other operations. So far I generally stink at calling underpeform, and any stock that can talk about water will benefit from the coming pump, but sooner or later you have to make money and grow. This companies IPO was to pay off debt incured from its failed efforts to grow. It will fail again, or I will lose a lot of points. No real money.

Featured Broker Partners