[Click on the picture above to see an analysis of the two stocks with major exposure to water entitlements in Australia.]
There is a lot of media attention on the water buybacks by the government in the Murray–Darling Basin over the last few years. It got me thinking about the state of water markets in Australia and whether there was a way to invest in the rising value of water. I could imagine the value of water entitlements could continue to rise if the fears about climate change start becoming a reality in future.
ASX-listed companies with exposure to water entitlements
There aren’t many ways to gain an exposure through the Australian Stock Exchange. So far, I have only found two companies that have a solid exposure to water entitlements.
One of them is a pure play on water entitlements with a market cap around $160 million, although they have just completed a $15 million capital raising and are embarking on a share purchase plan, so their market cap will be higher once all of that is bedded down. They trade in line with the Net Asset Value (NAV) of water entitlements that they possess and had a NAV of around $1.60 before the capital raising at a price of $1.48.
They are using the money raised to buy more water entitlements and to potentially pay down some debt and for working capital requirements. Their dividend yield in 2018 was around 3.3% fully franked based on current prices around $1.50.
The other company is following a slightly different strategy. They have a market cap around $550 million and the value of their water entitlements at last look was around $350 million. Their strategy is to add value to their water entitlements by using the water to grow agricultural assets such as cotton, almonds and walnuts.
Supply available for consumptive use of water has decreased with the ongoing Government buy-back program to support environmental requirements. If climate change does start to bite over the next decade or so, I think the value of water entitlements could skyrocket.
Editor, Alpha Wave Trader
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