In a recent note after the Calgary-based company held an investment day, Canaccord reiterated its "buy" rating and 12-month price target of $5.75 on Pure, which deploys technology to inspect pipelines and detect for leaks.
Meanwhile, in a sign of the company's burgeoning interest on the street, Mackie Research Capital initiated coverage in the past month with a $5.40 price target and a "buy" rating.
Pure’s strategy is in line with an industry shift away from costly, cumbersome capital projects to infrastructure renewal in the water and wastewater pipelines market, which represented 94 per cent of the company’s revenue last year.
There’s certainly room for improvement in the space: The American Society of Civil Engineers, which advocates for infrastructure management, gave both waste and drinking water pipelines a “D” grade based on their resilience and safety for the public.
By Pure’s estimates, the global market, including asset management services, large diameter leak detection and condition assessment, is worth about $4.5 billion. The company expects to drive the market wider, with its own technological innovation and field service.
Pure sees its revenue, pulled in from more than 50 countries, growing to $450 million over the long term from $60 million in 2012. Its top-line growth target is 20 per cent year-over-year. Comparatively, Mackie predicts revenue will grow 12 per cent and 29 per cent in 2013 and 2014, respectively, while Canaccord sees revenue growth of 14.6 per cent this year and 28.3 per cent growth in 2014.
Notwithstanding the double-digit forecasts, Pure will see some short-term volatility in revenue and earnings, especially internationally, where the company predicts it will take two years to turn a profit.
What has caught Canaccord’s eye is Pure’s license to lifecycle asset management software, amongst a “long list of technologies” that the research team is actively pursuing.
Indeed, Pure is tapping into new potential by expanding its toolbox. In the past, Pure’s growth has come from service work on pipes that have a steel cylinder sandwiched between concrete layers, known as pre-stressed concrete cylinder pipes or PCCPs. But the majority of pipes are metallic, which represents a huge growth opportunity.
Beyond water, Canaccord sees momentum in the oil and gas pipeline inspection market, three per cent of Pure’s business, where it expects Pure's research initiatives will expand its market reach and "contribute to continued strong growth in 2014 and beyond."
Financially, Pure’s balance sheet is strong and the company has no debt which, Mackie says, allows the company to grow both through acquisitions and organically. As of the end of March, Pure had nearly $70 million in working capital, $29 million of which was cash.
As a strategy, Canaccord is advising investors to buy on dips, based on Pure’s “unique and strategically-valuable” market positioning. Canaccord says that could eventually make Pure an acquisition target for any company “seeking a meaningful position.”
Likewise, Mackie considers the company to be an “excellent vehicle for investors desiring exposure to the fast-growing infrastructure renewal market.”
Shares of Pure, which has about a $230 million market cap, have risen nearly 10 per cent over the past six months and about 20 per cent from a 52-week bottom in December.