PFAS Regulation And Water Treatment Demand Will Support Long Term Earnings Potential

Catalysts

About SciDev

SciDev provides technology driven water, chemistry and treatment solutions to resource, infrastructure and industrial customers globally.

What are the underlying business or industry changes driving this perspective?

• Increasing regulatory pressure on PFAS and contaminated water in Europe, North America and Australia is expanding demand for proven treatment solutions, with SciDev now having Department of Defense, U.K. and Nordic reference sites that should support higher Water Technologies revenue and improved group EBITDA.
• Rising focus on water efficiency and environmental performance in global mining and infrastructure is driving long run demand for bespoke chemistries like MaxiFlox. This positions SciDev to convert its delayed multiyear contracts into a stronger FY26 revenue base and margin accretive growth.
• Expected ramp up in U.S. shale gas production over the next 12 to 24 months, combined with early traction for CatChek and new wins in basins such as the Permian and Haynesville, supports a growing, higher margin oilfield portfolio that can lift Chemical Services revenue and segment earnings.
• Ongoing mix shift away from commodity chemicals to proprietary products and solutions, supported by the Nuoer joint venture for scale and flexibility, is structurally raising gross margins and is expected to translate into higher net margins as operating leverage improves over FY26 and FY27.
• Recent investment in international sales, engineering and project governance, coupled with independent validation of FluorofIX and RegenIX, reduces execution risk on larger PFAS and water treatment projects and is likely to support a return to Water Technologies profitability and stronger group earnings growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming SciDev's revenue will grow by 15.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.8% today to 6.8% in 3 years time.
• Analysts expect earnings to reach A$10.9 million (and earnings per share of A$0.06) by about December 2028, up from A$-878.0 thousand today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, up from -95.3x today. This future PE is lower than the current PE for the AU Chemicals industry at 60.5x.
• Analysts expect the number of shares outstanding to decline by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.12%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The shift toward higher margin proprietary chemistry and away from high revenue, low margin commodity products could stall if customers remain price sensitive or competitors replicate similar offerings. This would weigh on long term revenue growth and cap gross margin expansion, ultimately limiting earnings.
• Water Technologies has recently delivered lower revenue and challenging projects that required costly rework and governance changes. If execution issues recur as the company takes on more complex, higher value contracts, this could prevent the segment from returning to profitability and drag on group EBITDA and net margins.
• The growth strategy depends heavily on U.S. oil and gas, including shale gas ramp up and expanding CatChek adoption. Therefore, prolonged periods of lower oil and gas prices, project schedule gaps or slower than expected well completions could reduce demand and pressure Chemical Services revenue and segment earnings.
• International PFAS and water treatment opportunities in Europe and North America require continued investment in on the ground capability, partners and M&A. Delays in scaling local operations, unsuccessful acquisitions or regulatory or permitting setbacks could slow contract conversion and constrain long term revenue and EBITDA growth.
• The business model relies on ongoing reinvestment in sales, engineering and growth initiatives while carrying project, tax and financing commitments. If working capital tightens, customers extend payment terms further or expected operating leverage does not materialize, cash generation could come under pressure and limit future earnings growth and net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of A$0.6 for SciDev based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be A$160.2 million, earnings will come to A$10.9 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of A$0.44, the analyst price target of A$0.6 is 26.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.