Orège’s FY18 results showed a significant revenue pick-up (six times restated 2017 revenues), with EBITDA and net income marginally ahead of our forecasts. The ytd ramp-up in orders implies that Orège is on track to reach our FY19 forecast of €6.3m revenues (2.8x FY18 revenues). The current share price is close to our bear case, which skews risk significantly to the upside in our view. Key share price catalysts are the continued ramp-up in orders and successful completion of the capital increase required by the end of 2019.
In FY18 Orège experienced a strong pick-up in orders, which led to revenue almost six times higher than 2017 (restated), albeit from a low base. Orège reported FY18 EBITDA and net income marginally better than our expectations, with revenue 13% lower than our expectations more than offset by lower operating expenses. Orège made progress on its order book as it stated that at the date of the FY18 results announcement (10 April), the overall value of the order book was €2.5m (vs €2.3m revenues in FY18) and several further contracts are expected to be signed in H119. Assuming the trend of commercial development continues, we believe Orège is well placed to achieve our unchanged FY19 revenue forecast of €6.3m, which implies 178% y-o-y growth.
Orège’s proprietary and patented SLG technology reduces sludge treatment costs for utilities by up to 80%, with a strong investment case for its clients (payback periods of less than three years) and large environmental sustainability advantages. We estimate a €439m annual addressable market size for SLG technology (current applications only) in North America, the UK, Germany and France. Growth potential in Asia and Southern Europe could add to this estimate. We forecast revenues increasing from €6.3m in FY19 to our estimated base case revenue potential of €57m in FY23 (bear-bull range of €22–93m). We expect strong margin improvement, leading to positive EBITDA in FY21 and cash flow in FY22.
Due to the early stage of commercial deployment, we believe investors should assess a range of potential growth outcomes and valuations. Following the recent decline, the current share price is closer to our bear case (€1.64/share), which skews risk significantly to the upside in our view (base case €3.84/share, bull case €9.31/share). Key share price catalysts are the continued ramp-up in orders and completion of the capital increase required by the end of 2019.