Phoslock share price collapses on poor results

The Phoslock hare price has collapsed amid news of damage to revenues due to coronavirus and high fooding levels in China.

| More on:
chalk drawing of line chart with falling arrow

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

The Phoslock Environmental Technologies Ltd (ASX: PET) share price has fallen by more than 20% today, at the time of writing. The company released a business update after trading on Thursday, which has been badly received in the market. Phoslock sells a range of products for water management. Among them is its patented technology to clear polluted waterways of algal blooms.

What moved the Phoslock share price?

The company's business update disclosed a number of issues likely to continue impacting it in FY21. On the one hand, the company has logistical difficulties executing awarded projects. On the other hand, it has very high receivables due to coronavirus impacts. Combined with the lower sales activity, this has resulted in a negative cash flow position for the period.

Operations

Unusually high rainfall during June and July has resulted in flooding and deterioration in water quality in several regions of China. This delayed projects underway at Shilongba, Xingyun Lake, Wuhan, Jiangsu, Zhejiang and Shanghai. In addition, the second wave of coronavirus in Beijing has caused problems due to travel restrictions. The company does, however, still have many ongoing projects that are continuing unaffected.

In Europe, authorities have suspended several projects to prioritise spending into more urgent public health issues. Projects progressing to plan are in the Netherlands, Belgium, Denmark and Italy. 

The company's projects in Brazil are continuing as planned, despite the challenging situation that has arisen from the pandemic. Phoslock expects Brazil to achieve forecast by financial year end. Moreover, all current projects are continuing in North America.

All of these operational issues are continuing to weigh heavily on the Phoslock share price.

Management commentary

Managing Director and CEO, Lachlan McKinnon said "The first half of 2020 has been a challenging period for the business. Events outside the control of the Company have resulted in project delays, lower than anticipated revenues and a working capital and cash flow that is currently weaker than expected.

It is important to stress however, that we have had no project cancellations and all of our announced contracts are expected to be fulfilled in due course."

Company performance

The Company's pipeline remains strong with a current high confidence contract value of $380 million. Phoslock's balance sheet also remains strong, with $35 million in cash, $15 million in receivables and no debt at the end of the period. The company has also recently received an indicative term sheet for short-term working capital debt facilities with HSBC. The Phoslock share price has fallen by 20.37% today, at the time of writing. 

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. 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 Scott Phillips.

More on Share Market News

A young woman looks at here phone as she strides out in an airport dragging her wheelie bag behind her and smiling widely.
Broker Notes

Macquarie tips 15% upside for this ASX 200 industrials stock

Is this transportation business preparing for take-off?

Read more »

Red buy button on an apple keyboard with a finger on it representing asx tech shares to buy today
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another momentous session for ASX shares this Friday.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why BHP, Catalyst Metals, Mesoblast, and Pilbara Minerals shares are shooting higher

These shares are ending the week with a bang. But why?

Read more »

Disappointed man with his head on his hand looking at a falling share price his a laptop.
Share Fallers

Why 29Metals, Atlas Arteria, DroneShield, and Yancoal shares are falling today

Let's see why these shares are ending the week in the red.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

The Mesoblast share price just rocketed 38%! Here's why

ASX investors just sent the Mesoblast share price up 38%. But why?

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Record Highs

Big ASX 200 news! Market hits 8,700-point record high

It's a historic day for the ASX.

Read more »

Miner with thumbs up at mine
Broker Notes

Up 55% this year, does Macquarie rate Gold Road Resources shares a buy, hold or sell?

Does this strong performing gold miner have more room to run?

Read more »