Latest opportunity stock is Duxton Water (D20), which presents an opportunity to invest in Australian water entitlements (also known as water licences or water rights), giving perpetual right to Australia’s water supply. Water is a key input into a number of agricultural industries and as such Duxton Water acts as a proxy to the agriculture industry. D20 manages a portfolio of water assets aiming to access both income yields and capital growth opportunities. It is the only listed water company of this type, worldwide.
Duxton Water receives revenue primarily through long-term lease arrangements with producers.
The leases are commercial in nature with varying terms, where the lessee pays a fixed annual amount (quarterly in advance) to the lessor who maintains holding over the asset title. The lessee bears the risks associated with water allocation variability year-on-year, minimising any risk of climate variability year-on-year for Duxton Water. The water allocations of the unleased portion are actively traded in the market to return gains on sale. Through dividends, the returns flow though to investors.
D20 manages $227m of water assets. The returns for D20 has been spectacular, with last 12 month returns of 29.44% and you would agree that over time, water assets become more expensive. Its NAV grew from $1.18 to 1.37 during 2018 and the company paid two dividends (4.9c plus franking). Its NAV at the end of Feb19 was $1.50. The main driver of capital growth has been the continued increase in entitlement values throughout the Murray Darling Basin. This business which employs no employees, can be said to be recession proof!
I find this opportunity to be a great one, with minimal volatility and established long term growth patterns (will survive the Big Kahuna!), very similar to Australian Unity’s Healthcare Property Trust Fund (which is a major landlord of private hospitals throughout Australia).
