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Why the Emefcy Group Ltd share price is heading higher today

The Emefcy Group Ltd (ASX: EMC) share price has climbed 5.75% to 93 cents today after the technologically advanced wastewater treatment business announced that it has secured three new commercial agreements in China over the last week.

Earlier in May the company also announced an “intention to merge” with New York-based RWL Water which is also a junior wastewater business that is looking to grow on the global stage.

Since the news of this deal and the “China agreements” the stock has climbed around 15% to 93 cents as investors get excited over the potential of the business.

The announcement over the merger claimed that “on a combined basis the two groups would have achieved revenues of US$62 million ($A83 million) in 2016 and anticipates sales in excess of US$90 million (A$120 million) for calendar 2017.”

On the back of all these announcements and other excitement Emecfy Group is now valued at more than $200 million, although according to its cash flow statement for the quarter ending March 31 2017 it posted revenues of just US$70,000.

Unsurprisingly for the same quarter it posted a cash loss of US$3.28 million, with cash on hand of US$19.8 million.

For calendar year 2016 EMC’s total revenues were just US$498,000 which means it seems to be largely relying on the merger with RWL Water to meet its boasts for combined revenues of US$90 million in 2017!

Given its cash flows and valuation above $200 million it’s fair to say I’m not a buyer of EMC shares at 93 cents, despite what potential it may have to grow on the back of its specialist technologies or “its intention to merge” with RWL Water.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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