"NEAR HIT"

Or is the crisis in its making? I first experienced something like a water crisis after the war. The Russians occupied Budapest in January, 1945, and for about two weeks Budapest had limited amounts of water. The crisis passed and, even so, in the subsequent twenty years I lived in Hungary, Germany, Switzerland, England, South Africa and then in the Belgian Congo. There was no shortage of water. Subsequently, I never thought about the water crisis. The first time it came back into my life was when at home I got used to, or was ordered to drink nothing but bottled water and the bills amounted to close to $100 a month.

When after six decades on this planet, I read through my professional life the demand for water and the restricted supply, I first think about the oil crisis and like in Jimmy Carter's days, the interest rate crisis.

Water supply and demand has theoretically the same equation as oil. We are using about 83 million barrels of oil a day, and not even the most optimistic people believe that in five years the number could go to 100 million barrels. So we have in the crisis because two and a half billion people in India, China, Indonesia, are making the same demand for oil as the people of Manhattan. Wait until it comes to water. When it comes to oil in China, we think about the six or seven hundred million civilized Chinese. When it comes to water, we think about the six hundred million Africans, the billion people in India. You don't have to be civilized to have a demand for water. It is also perfectly obvious that $100 per family for water is an unbelievable figure when we calculate the world's population. Yet, clean water in our health conscious world is a necessity.

I made a calculation that even on a 25% level, China, India and the U.S. would have to spend the following sums of money for water in a perfect world. One billion families, $1,000 bottled water cost one billion. 25% is a mere $250,000,000. What about Russia, what about Brazil? Water is a very good business. In the latest figures for Aqua America, the quarter ended June, 2005, the operating revenues amounted to $123 million, the operating income $49 million, and the net income after taxes was $22 million. The company has 96 million shares outstanding and the market capitalization of the company is $3.2 billion.

Since there are eight major water companies listed on the NYSE, these kinds of margins and market cap is only possible because the demand for water is hardly supplied by the major companies. Two of the water companies in the world, both French, Vivendi and Suez, have built empires on the yearly cash flow. Market cap for one of eight major water companies for $3.5 billion is a lot of money. Now, the question comes up, where are the ordinary people's yacht?

Obvious choice is the manufacture of water in one way or another without disturbing the environment. A totally unknown company, Hendrix, is engaged in the research and development, manufacture, marketing and worldwide distribution of water generation, filtration, ionization and purification devices. Hendrix's products include atmospheric water generation units, alkaline calcium ionic water dispensers, and various carbon filter devices. Hendrix's proven technology is environmentally friendly and promises a solution for a worldwide scarcity of uncontaminated drinking water.

Hendrix manufactures in China a series of simple devices to be sold between $400-$500. One of them is a multi-purpose machine which generates water, purifies water, dehumidifies and clears the air. Of the various functions, the water purifying is the most interesting. It is cost effective and bacteria treatment function. A portable air conditioner mode can be used in offices and residences as an air conditioner or a dehumidifier. Virtually no installation is necessary to bring portable air comfort. It comes with a venting kit to prevent water from recirculating to the cooling room.

The company is well capitalized in a sense that it has raised so far $9.7 million and is in the process of raising an additional $5 million. The company operates in about fifteen countries and through individual distributors. It has installed in the first six months of this year about 12,000 machines which calculating at a $500 level amounts to $6 million in revenues. We estimate that it will do $8-9 million revenues in the second half, and over $25 million in the year 2006.

The valuation of the company is twofold, conventional and classical, and the valuation on a futuristic assumption. On the conventional level, sometime before the decade is over there will be 100,000 machines installed. The value of those machines would then be around $50 million and if the company will turn from sales to lease, we may calculate that the company could be worth eventually $100 million. There are 40 million shares outstanding.

The upshot of our argument is that Hendrix and the Hendrix machines would eventually be discovered. Major distributors and water treatment giants will stand behind it or buy into the companies, and increase the population much faster. Surely if a company like Aqua America, serving 2.5 million people, could install let's say 200-300,000 machines and the valuation of the company jumps accordingly. Virtually everywhere in the Western world there is a company like Aqua, there is a company like Suez, so we can certainly talk of a distant possibility of a million units in the marketplace.

This would of course raise the market valuation of Hendrix and it could raise the sufficient money to go aggressively into places like India, Indonesia, Eastern Europe, Russia, the Ukraine and Africa. Hence, we can say that the water shortage may usher in a company with a simple revolutionary device which satisfies man's demands. Rightly or wrongly, I think about Hershey Chocolate, Coca-Cola, Dell Computer, XM Radio, and we are talking about billions and billions of market caps.

Hendrix machines are available. The demand is there. It requires superior organization to bring supply to demand. One thing is certain, there has been in my lifetime a crisis of the Second World War. Then there was a crisis of communism. Then there is an energy crisis. Then there was a food crisis. None of them fit every living person. The water shortage is everybody's shortage, the shortage of six billion people.

It is the first universal world crisis.   

(Article 3 - posted August 16, 2005)

e-mail: mlikar@aol.com

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