Heckmann reported its Q2 numbers today. I don’t expect any major news from this company until late second half of 2010. The main concern for Q2 was the cash position, making sure management didn’t do anything stupid with the cash. The company ended Q2 with $235M cash and cash equivalent. The breakdown on the 3 main business segments:
Heckmann Water Resources (pipeline business outside of ETP JV)
– The company ended Q2 with 48% of the pipeline capacity in use. The company has said they expect 100% to be in use by end of 2010, so far the company is on track
Heckmann Water Solutions (JV with ETP)
– The company intends to acquire 3 water treatment and disposal companies in the Marcellus share region. I’m excited about the company putting its cash to use in expansion of the water pipeline business. The acquisitions of plants are currently handling water disposals, not via pipelines through. So I expect these acquisitions to be accretive.
– The company is working on design and development of pipeline projects. I believe in second half of 2010 we should hear some big Marcellus shale players signing up with Heckmann for water treatment/disposal.
China Water and Drinks
– The company’s private-label fruit flavored beverage is doing good. Since May 1, the company sold 415,000 bottled drinks (annualized to 2.5M bottles). The company is looking to sign marketing and distribution. I see this beverage as a wildcard, if it works then the upside is huge.
Overall the management is doing a great job executing on the water pipeline business. I’m glad to see the company put its cash to work in expanding the water treatment capacity. I think it will take 1-2 years for the company to start generating strong cash flow from the pipeline business. In the meanwhile, I want to keep an eye on how management puts the current cash to use. So far, I feel comfortable with the management’s decisions where the cash is getting invested.
2 responses to “HEK: Good Q2 results, second half looks even better”
I have just started research HEK and wanted to know your current thoughts on the company.
Thanks
I think HEK has a great future. Their water pipeline business is going to be huge. They are really the only one in the business and have the partnerships in place to scale. I also like the management investing the cash in the water pipeline business. I expect some major partnerships in the Marcellus area in the next 3-6 months. The China Water business is a wild card that could be huge, but for now I would not put any value on it.
The big risk is management making mistakes with the cash. The China Water business was a huge cash drain. Management investing cash in the water pipeline business is a good sign.
At current prices, I would be interested in buying more shares. I think it could take 2-3 years for this to play out, but the future looks very good for this business.