By: Andrew Duncan
31.03.2023
Andrew Duncan, Senior Equity Analyst at Killik & Co, was recently invited to tour Thames Water’s Mogden sewage treatment plant outside Twickenham, the third largest facility of its kind in the UK. The hosts of the event were Xylem, the world’s largest water technology company and our favoured way to invest in this increasingly important global industry, who were represented by senior global and regional leaders.
Needless to say, Andrew (pictured next to a brand-new Xylem wastewater pump) leapt at the chance to spend a couple of hours in the rain learning first-hand about the world of wastewater treatment. Here he provides a glimpse into a day in the glamourous life of an Equity Analyst, as well as (more importantly) some insight gained from Xylem’s senior management team.
Photo 1
The tour
The first step (after collecting the wastewater) is to remove non-biodegradable objects that make their way into our sewers, including items not designed to be flushed such as baby wipes and nappies (see photo 2).
The second step involves the wastewater being pumped into tanks where solid waste sinks to the bottom and grease and fat float to the top. Due to the hazardous gases released in this process, the tour did not enter the settlement tank facility, so thankfully there are no photos.
Once the sludge is removed in the second stage, the waste moves on to huge aeration lanes in which air is pumped into the liquid from below, encouraging good bacteria to break down harmful bacteria. These aeration lanes (see photo 3) are 13 metres deep and due to the high concentration of air, the water is not dense enough to support swimming, if one was so inclined – even ducks are unable to float!
Photo 2
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Photo 3
Photo 4
Our interactions with Xylem’s senior leaders (including global CEO Patrick Decker and recently appointed COO Matthew Pine) were uniformly positive, with the company providing useful updates on its product portfolio, underlying demand dynamics, and the opportunities presented by the Evoqua acquisition, which it is hoped will complete in the coming months.
On the technology front, the company highlighted its latest innovation in “smart” wastewater pumps, the Flygt Concertor, which uses as much as 40% less energy and has significantly higher reliability, reducing costly downtime and servicing call-outs. Despite commanding a 60% premium to comparable non-smart pumps, the cost savings from Concertor means these pumps pay for themselves in a few months or even a few weeks!
Xylem also spoke at length about its partnership with Idrica, a Spanish software platform developer. The partnership will bring together Idrica’s GoAigua technology with Xylem Vue, Xylem’s portfolio of digital solutions. The result will be an integrated software and analytics platform that helps water and wastewater utilities to collate and manage their digital assets, and to optimise numerous operations in a straightforward and secure way.
In terms of underlying industry demand, Xylem spoke positively about the numerous tailwinds that are driving investment across the water industry, ranging from ageing infrastructure, greater regulation and increasingly unpredictable weather conditions, which makes running a water utility more difficult. This robust outlook was corroborated by representatives from Thames Water, who outlined the requirement to embrace new technology to help future-proof existing systems.
Finally, the company spoke positively about the case for the pending Evoqua acquisition. Whilst the cost synergies are compelling, the bigger opportunity comes from expanding Evoqua’s US-centric client base internationally, where demand for consistent, high-quality water supply is increasingly valued by industrial customers in fields such as food & beverage, electronics and life sciences.
Overall, we came away from our field trip with a better understanding and appreciation of the important work that is performed by water utilities such as Thames Water in the face of significant challenges, alongside an increasingly positive view on Xylem as an unrivalled leader with a unique opportunity to solve the most pressing issues in the global water industry.
If you would like to discuss anything raised in this article in more detail, please don’t hesitate to get in touch.
