| Rating | Price | Market Cap | Date |
| Buy | $0.11c | $31.04mn | June 2024 |
| Forward P/S Multiple | Price Target | ||
| 1.1x | $0.18c |
Acquisition overview:
De.mem Limited has announced the acquisition of Auswater Systems Pty Ltd, a company based in Perth, Western Australia, specializing in water treatment solutions primarily for the mining sector. Auswater is an established business with a 29-year-old operating history and has revenues of $1.3 million AUD per year.
We think the acquisition is financially accretive. De.mem paid 4x EBITDA which is below the historical
average for Damme’s previous acquisitions of 5.2x EBITDA. This favourable valuation aligns with De.mem’s strategic approach to value driven growth as highlighted in the report we published in May of this year. The acquisition brings the co to near-EBITDA breakeven — I imagine this is accretive to future bolt-on acquisitions. Note the chart below…
Furthermore, Auswater systems has a high gross margin of 60%, which is significantly higher than De.mem’s 38% in CY23. This margin improvement is expected to increase De. mems overall profitability and move De.mem to move closer to becoming sustainable full year operating cash flow neutrality. Auswater also has a large recurring revenue stream of over 90% that are significant
contributors to cash flow.
Strategically, this acquisition strengthens De.mem’s presence in the Western Australian mining sector, a critical market segment with significant growth potential. Adding over 50 long-term mining customers to its client base which enhances De.mem’s market position and customer diversification. These clients mainly being in the service, chemicals, and consumable business. This geographic and sector expansion supports De.mem’s goal of broadening its market reach in a highly fragmented and competitive industry.
The acquisition of Auswater Systems Pty Ltd aligns with De.mem’s growth strategy by adding high- margin, recurring revenue streams and enhancing its market presence in the mining sector in Western Australia. The deal is structured to be financially accretive and supports De.mem’s path to operating cash flow positivity. Retaining BUY.