Zentek Ltd V.ZEN

very positive article in Globe

[jacks1u]

Zenon profiting from contaminated water fears North Battleford, Walkerton scares pique investors' interest in water filtration firm GRAEME SMITH Source: Bloomberg Financial Services, Thomson Financial Datastream, https://www.globeinvestor.com Wednesday, May 23, 2001 For a small high-tech firm such as Zenon Environmental Inc., stock market success can spring from the strangest sources -- including disasters. When contaminated water in North Battleford, Sask., made headlines in the first weeks of May, the publicity drove up prices for Canadian water filtration stocks. Zenon got the biggest boost, rising 65 per cent since the beginning of the month to close at $13.45 yesterday. It was the second time in less than a year that calamity had piqued investors' interest in the Oakville, Ont.-based maker of water filtration membranes. The stock enjoyed a small rally during the water crisis in Walkerton, Ont., rising 60 per cent to more than $9 last July, though weak sales soon dragged it back down. The shares had been priced between $6 and $8 ever since, until the latest water scare. Analysts have differing opinions about whether this summer's spike will be just as ephemeral. The company is much healthier this year. Revenue for the quarter ending Dec. 31, 2000, climbed to $33-million -- the first time in the year that quarterly revenue had exceeded numbers posted 12 months earlier. An April report by Avi Dalfen of Research Capital Corp. in Toronto observed that the company's order backlog had swollen to twice its size a year earlier. He upgraded the stock's rating to "strong buy" from "buy." "Zenon's sales rebound is increasingly certain," Mr. Dalfen wrote. The financial picture got even brighter in the first half of May as two announcements touted new contracts worth a total of $27-million. An upcoming project in Italy promises to be the biggest membrane water treatment plant in the world. Last week the company reported another strong quarter, with revenue of $23.5-million for the period ending March 31, up 47 per cent from the previous year. But Sara Elford, of Canaccord Capital Corp. in Vancouver, says the encouraging numbers aren't as important as the hype surrounding water problems. Zenon is basking in attention for selling filters that stop parasites such as the now-famous cryptosporidium that contaminated North Battleford. The company is also getting mileage out of the fact that its filters are used by the Ontario Clean Water Agency (OCWA) to block the deadly strain of E. coli bacteria in Walkerton. "This has certainly turned into a momentum stock," she said. "It's a pretty sexy area." Should investors sell the stock while the publicity lasts? "If I were a value investor with a shorter-term horizon, then sure," Ms. Elford said. But she added that few investors are selling because they see the water treatment industry as a growth area. Ms. Elford had rated the stock a "market perform" and expected it could reach $10 this year. "But the stock shot right through that [expectation]," she said. She plans to rethink her predictions. Zenon started developing its filter more than a decade ago, when young researcher Pierre Côté joined the company founded by his PhD supervisor, Andrew Benedek, now its chief executive officer. Their invention purifies water by drawing it through fibres with microscopic pores. The technique doesn't use chemicals and needs less space than conventional treatment methods. It can be used to make water safe for drinking or to treat industrial waste water before it is discharged to groundwater. "They've got a good product," said Andy Valickis, an OCWA project manager. He rush-ordered a Zenon filter for Walkerton last summer. It was the only type of filter available in a hurry, Mr. Valickis said, since the necessary equipment was already sitting in two shipping containers in Zenon's parking lot. The membrane system is more expensive than a conventional treatment plant, and it's only being rented for Walkerton temporarily until a cheaper solution can be found. But Mr. Valickis says municipalities may be more willing to pay for cleaner, safer water now that doubts have emerged about existing systems. "If you need that extra degree of treatment, you're looking at a Zenon-type system," he said. Mr. Benedek says membrane filtration doesn't cost more where there isn't already a treatment plant. And many communities consider the extra cost of an upgrade worthwhile, he said. "You may spend 10 per cent more," Mr. Benedek said, "but you wind up with safer and better-tasting water." He says the company's recent moments in the spotlight have only highlighted its strengths. "The company was underpriced and ripe for a change," he said. "It [North Battleford] kind of underlined our very reason for existence." Mr. Benedek says last year's sales slump -- which affected the entire filtration industry -- is long gone. He's looking forward to launching a new line of products this fall, marketed by Enbridge Inc. and aimed at home owners who want to purify their own water. "We'll keep growing," Mr. Benedek said. "We're a world leader in a growing market -- we'd have to be pretty stupid not to grow." Zenon Environmental: vital statistics Business description Provides advanced technology products and services in water purification, process separation, as well as wastewater treatment and recycling. Head office: Oakville, Ont. Telephone: [phone] Web site: https://www.zenonenv.com TSE symbol: ZEN Employees: 501 Share values Trailing 12-month earnings per share 18¢ Trailing 12-month P/E ratio 75.00 52-week intraday high $14 52-week intraday low $5.75 Last close $13.45 Change from previous +45¢ 1-year total return 113.49% 60-month average annual return 31.14% Funds with heaviest weighting in Zenon Environmental Share holding as a % of total fund value, as of March 30, *as of April 30. Perigee Cdn Aggres Gwth Equity* 2.9 Floyd Growth 5.9