Our hottest small cap pick for the day is a company that has developed a truly disruptive technology and has the ability to address one of the biggest global crisis – the supply of potable water. Rainmaker Worldwide (OTCPK:RAKR) is a classic example of a company that has invested heavily in technology but has had very limited communication with the markets regarding its ground breaking progress which is why its stock trades at a ridiculously low valuation of 7 cents per share. The company was recently in the news for its merger with Sphere 3D in 2020 and has carried out some highly successful proof of concept deployments with respect to its equipment indicating that its stock price should be ready to take off in the coming months.
Rainmaker Worldwide Inc. is a Canada-based corporation engaged in the production of drinking water for communities around the world. The company is building various water-producing technologies which are economical, scalable, and sustainable for the environment. Some of its core technologies include the air-to-water technology (harvesting fresh water from the air), the water-to-water technology (transforming seawater or polluted water into potable water), and commercial water-to-water technology. The company operates on a Water-as-a-Service business model and is headquartered in Peterborough, Canada.
Robust Business Model
Rainmaker’s equipment operates through 2 main models – an air-to-water conversion and a water-to-water (seawater to potable water) conversion. It operates through a joint venture model in order to have access to the relevant source using 5-10 year offtake agreements with a 50-75% ownership in the venture. The company’s air-to-water solutions address scarcity and mobility issues and are meant to be deployed in areas which are spending heavy outlay on the transport of fresh water for their consumption. This technology has the potential to produce 4,500 litres of water each day and generate a revenue of $450 and a 75% gross margin assuming a floor price of 10 cents per litre. On the other hand, its water-to-water technology works to carry out desalination, water treatment and mineral isolation and it operates in the same domain as waste water treatment companies and traditional RO equipment providers. The company’s equipment in the water-to-water module has a capacity to produce as much as 35,000 litres of water per day and has a daily revenue potential of $1,750 even if we assume a floor rate of 5 cents per litre with a similar gross margin of 75%. Both its modules have a very low setup cost with minimal infrastructure requirements. They also have the capability to generate a phenomenal return on investment and a payback period of less than 1 year in either case. It appears to be a matter of time before the company sees many of its joint ventures taking off.
Strong Macro For Water-as-a-Service Businesses
As per Unwater.org data, only 3% of the total water on the surface of the earth is fresh water than can be consumed by humans and animals but 2.5% of this is frozen around the polar regions indicating that we rely on hardly 0.5% of the total water in the world. With the rapidly growing global population expected to reach 9 billion by 2038 as per Worldometers data, there is a strong requirement for potable water. The fact remains that even today, nearly 2.2 billion people lack safe drinking water and as many as 3 billion people lack basic handwashing facilities at home as per UNICEF data. This is why the provision of adequate water for human consumption is ranked 6th in the United Nations’ 17 Sustainable Development Goals. This has created a huge market for Water-as-a-Service providers like Rainmaker Worldwide particularly in Asia and Africa which account for more than 75% of the world population but have access to only 43% of the world’s fresh water supply. As of today, Rainmaker’s offerings are applicable to 70% of the $620 billion global water market today as valued by UBS research in 2019 which is expected to expand to $1 trillion levels in the coming 4 years. The company is expected to expand to the Middle East, Africa, and South East Asia through joint ventures in island nations and remote communities. Its proof of concept deployments have shown a reasonable amount of success and it is a matter of time before these actual deployments also start generating revenues.
Rainmaker is a heavily undervalued microcap trading at a ludicrous value of 7 cents per share. The company’s market capitalization today is over $6 million and it is worth noting that even if the management is able to capture 1% of this market pie, it would make Rainmaker close to a billion-dollar company. This would result in unimaginable returns for its shareholders. Given the strong business model and the huge addressable market resulting in a phenomenal future upside, Rainmaker is definitely one of the most attractive undervalued microcaps in the as-a-service domain.