In the Loop
Netafim can only be bought indirectly
Netafim is an Israeli drip irrigation pioneer and a global leader in irrigation solutions for the agriculture with a 30 percent market share. The company expects its earnings to rise by 50 percent by 2020. Indeed, Netafim is a very interesting and sustainable company with excellent future prospects. However, the Mexican-based company Mexichem bought a 80 percent stake of Netafim for $1.5 billion in the beginning of 2018. The remaining 20 percent is still held by Kibbutz Hatzerim. In 2017, Netafim had revenue of $949 million. Mexichem, its parent company which produces a diverse portfolio of chemicals, petrochemical products and plastic pipes, had revenue of $5.8 billion in 2017. Mexichem is a stock company and you can buy its stock at quite a fair price right now. Thus, Netafim can only be bought indirectly by buying Mexichem but you should expect Netafim to take on a more important role for its parent company in the coming years with its EBITDA to rise faster than Mexichem’s overall EBITDA.
Have you ever heard about Xinjiang Tianye Water Saving Irrigation System?
Probably not and neither have we heard about this Hong Kong-based company anything at all. But we were asked whether it might be a stock to invest in and the answer to this question is quite simple: No. Xinjiang Tianye Water Saving Irrigation System manufactures and sells components for water saving irrigation systems like drip tapes and pipelines. However, it is very hard to find any news about this company, its business development as well as its financial statements. Neither can you access its official website. Buying Xinjiang Tianye Water Saving Irrigation System has nothing to do with a water investment. It is rather a highly speculative pennystock 0,03 € worth each stock. Do not make the huge mistake and buy a stock just because it sounds promising and someone else might have told you to invest in. Buying a stock precedes hard work where you end up knowing the company like the back of your hand.
What is a so-called long term Investment?
We have been asked what would be a long term investment since we describe water as a profitable long term investment several times? Well, instead of giving a sheer definition which you can easily google but still do not have the right understanding of it, we will try to give you an example. Take a look at the emerging markets and the continuous expansion of the middle class in Asia. By 2025, another 1 billion people will join the middle class in the emerging markets. 90 per cent of them are Asian of which about 500 million will be Indian and 300 million Chinese. This is already a long term trend which will not only further support the consumer sectors but also the infrastructure sectors across Asia. However, this long term trend will lead to a higher consumption of water not only for drinking but especially for processing. The middle class prefers meat, consumer goods as well as fruits and vegetables and all of them have in common that they need a high amount of water to be produced. The consumption of water as a commodity is steadily rising and thus are companies in the water technologies and wastewater treatment sectors profitable long term investments backed by a demographic transition. Finally, this is how you should see a water investment: A global macro investment.
Sodastream has been removed from wasseraktien.net
The Israeli home soda maker Sodastream has been removed from wasseraktien.net because PepsiCo has just completed its acquisition by acquiring all outstanding shares for $144 per share. Consequently, SodaStream has delisted from the TASE and Nasdaq. For those who would like to invest in the home soda maker / carbonated drinks market might find an alternative in Primo Water, one of the biggest competitors of Sodastream in North America.
Intelligent and long term Investments
Do not try to time the market because you simply won’t succeed. On a long term basis, trying to time the market and exercise day trading will eventually lead to failure. You will lose your money and because of disappointment you will stop being interested in the stock exchange for good. For example, take a look at the Brazilian water utility SABESP. The stock has been on a roller-coaster ride for many years but long term investors do not really need to care about this. As a water utility, SABESP offers a stable and conservative business with predictable income. Investors who bought the stocks years ago have got an annual dividend of 3% -4.5% each year. The reasons for the downturns in the last year were rather external factors like political turmoil as well as a hydrological crisis. However, as the Brazilian Real is weakening, the main internal factor investors should closely observe is the proportion of foreign currency debt relative to the overall amount of outstanding debt (46 % at March 31, 2018) because SABESP generates it income in its local currency Brazilian Real. Otherwise, SABESP with its almost monopolistic position as a provider of an essential service within its concession area is a low risk and steady income investment for long term investors. Of course, we know long term investing sometimes seems to be boring and tedious but over years it is more profitable and also less stressful. You will benefit from not selling each little book profit you have in your portfolio provided you are convinced by the stocks you have picked.
What would happen if Corbyn becomes Prime Minister?
The bitter infighting in London in the last couple of weeks has increased the chance of an early UK election that could oust Theresa May and make Jeremy Corbyn the next Premier Minister. Overall, the opinion is that the stock market would react negatively to a Corbyn victory but it is almost certain that the UK water utility stocks would react even more negatively than then broader market. The reason for this is that the Labour Party has promised (even though this does not mean anything in politics) to renationalize Britain’s water, railways and energy companies with the clear note that investors would probably not receive full compensation in case they are brought back under government control. Right now, United Utilities, Severn Trent as well as Pennon Group are all traded above their book value. But a Labour election victory may even provide opportunities for stock pickers and long term water investors since Jermey Corbyn may struggle to secure approval in parliament for the most radical parts of its agenda but the first reaction of the stock market to its victory would probably be a broader sell-off. Furthermore, the courts would make it difficult for a Labour government to undercompensate but only the possibility has battered UK water utilities quite heavy in the last month. Right now, there is uncertainty about what will happen next and how will UK water stocks be influenced by the political changes, but we are here to invest for the long term and UK water utility investors should not get to nervous about the Brexit and the infighting in London even though it creates high price fluctuation in the short term.
A pure Water Infrastructure Stock
This week, US based Mueller Water Products announced that it will acquire Krausz Industries, Ltd., a manufacturer of water infrastructure related products like pipe couplings, grips and clamps. The company is headquartered in Tel Aviv, Israel and had net sales of approximately $43 million in 2017. The first important thing is that the acquisition is funded entirely with cash, meaning, Mueller Water Products balance sheets remains quite healthy. Furthermore, the transaction shows the gradual transformation of MWP into a pure water infrastructure company. In 2017, the company did a similar step in this direction by selling Anvil International, a producer of pipe connections for industrial, oil & gas and fire protection industries. Mueller Water steadily expands its global capabilities in the repair water infrastructure market and thus prepares for the growing water infrastructure market. However, the stock does not come cheap and neither is Mueller Water protected against a possible downturn in the stock market but at least you should start studying the company more closely in order to be prepared once you might see an advantageous moment for buying.
Any way to invest in the Indian water market?
We have been asked whether there is any possibility for direct investments into the Indian water market via stocks, funds or ETF´s. As far as we know, there is no way for foreign investors to invest directly in the Indian water market. However, you should notice a French as well as an Israeli water company which are both engaged in the Indian water market. At first, take a look at Suez Environnement. The company is active in India for more than 30 years and distributes round about 5.5 billion litres of drinking water each day to more than 44 million inhabitants. Thus, Suez is engaged as a water utility in India as well as a constructor of water and wastewater plants. However, the company is present almost all over the world, particularly in Europe and consequently the Indian business represents only a small fraction of its balance sheet. A more interesting water stock might be the Israeli water technology company Amiad Water Systems. Obviously, the management has understood the importance and prospects of the Indian water market. Some month ago, Amiad acquired the remaining 40% of Amiad Filtration Systems India. Amiad India provides Industrial water filtration solution to Industries in the steel sector, oil and gas, municipal water boards and desalination plants as well as solutions for drip irrigation systems, landscape developers and green houses. For now, Amiad Water Systems might be the water stocks which gives interested investors a balanced access to the Indian water market with promising long term prospects. Otherwise, there are no direct Indian water stocks you can invest in these days.
Why Nestle, Coca Cola and PepsiCo are not added to wasseraktien.net
Companies like PepsiCo, Coca Cola and Nestle are global players and belong to the biggest companies by market capitalization. Each of them has a diversified product portfolio with well-known global brands including bottled water brands. However, none of these companies is added to wasseraktien.net and the reason for this exclusion is actually quite simple. Buying Nestle, Coca Cola or PepsiCo stocks must not be seen as a water investment because each company generates most of its revenue beyond the water market. For example take a look at Nestle. In 2017, the Swiss Company generated CHF 90.121 Billion in total revenue but only CHF 7.455 Billion came from its water business. Thus, Nestle’s water unit contributed only round about 8 % to its total revenue in 2017. If you now consider buying Nestle stocks because you would like to invest in the water market, your investment is much more exposed to all other units of Nestle (food, coffee, pet food) but not really to the water market. The same is true for PepsiCo and Coca Cola. Consequently, we do not add these companies to wasseraktien.net because none of these stocks can be seen as a water investment.
The most attractive Chinese Water Stock right now
In the last couple of weeks, we have been asked several times which might be the most attractive Chinese water stock in 2018 concerning long term prospects and current valuation. Well, right now we see Beijing Enterprises Water as the most attractive long term stock in the Chinese water market. The company provides a range of water services and environmental protection services in China, Singapore, Malaysia, and Portugal and has even just bought a water supplier in Australia. It is especially engaged in water treatment and water supply operations. This makes it a solid investment with a stable cash flow and predictable dividend income even in a nascent bullish market or a worsening US-China trade dispute. Furthermore, the current valuations is quite attractive with a price/earnings ratio of 10.3, a price/book ratio of 1.47 and a dividend yield of 3.6 %. Another advantage which has rather been unrecognised is that the Chinese government is strengthening supervision of PPP (private public partnership) projects by reducing the number of projects and improving the quality of projects in its database. BEWG will probably benefit from this step because the Chinese government intends to support the participation of leading water companies with advanced technology, efficient management and rich project experience. What looks instead a bit concerning is the growing indebtedness of BEWG. The company is a highly leveraged one with debt levels having surged from HK$37.79b to HK$49.38b over the last 12 months. However, BEWG has an interest coverage ratio of round about 5, which can be seen as financially sound. Indeed, BEWG looks quite attractive for long term investors but as it does apply to every stock investment, closely study the balance sheet and debt structure of your next investment.
Alkaline Water has been added to wasseraktien.net
The US-based Alkaline Water Company has been added to wasseraktien.net. The company exclusively sells bottled alkaline water which has been seen as a health-conscious product in the last couple of years. An investment in Alkaline Water might be a bet on a continued health-conscious lifestlye in the USA but also a bet on the fact that Alkaline Water can compete in this business area against big players like Coca Cola, Nestle and PepsiCo.
Xylem named to FORTUNE “Change the World” List
The water technology company has just been listed as number 7 in the “Change the World” list 2018 published by Fortune. Of course this once again shows the significance of water in the 21st century with Xylem being the so called ‘big player’ in the water business. Xylem covers almost all crucial water sectors ranging from water technology to water infrastructure and water technic. Responsible for its broad business activities is a buying spree conducted in the last couple of years. That is why the balance sheet looks a bit stressed right now and valuations like price-earnings ratio and price-book ratio overpriced. Quite rightly, Xylem has been named by Fortune as one of the most important companies to help the planet and tackle social problems and it is undoubtedly one of the best long term water investments right now but investors who are not yet invested in Xylem should rather wait on the sidelines, further analyse the company and try to get a cheaper buying opportunity.
Pepsi snaps up Sodastream
Everybody who has been invested in Sodastream since it was suggested on wasseraktien.net some years ago could already make a big profit. Now the profit is to get even bigger since PepsiCo has just announced that it aims to acquire the Israel-based home drink-machine maker for $3.2 billion. Back then, the company was recommended as an investment to get access to the health-conscious beverage market with Sodastream having a strong global presence and innovative products. Buying this stock now doesn’t make sense because the board of Sodastream has already agreed on the takeover price. Neither should Pepsi be seen as a water investment because most of the company’s reveneue is generated beyond the water / drinking water market. Investors might look at the US-based company Primo Water as an alternative to be invested in the growing water dispensers-market. Besides, it might also be a bet on combating the huge global plastic problem.
Amiad Water might become a potential takeover candidate
In July, the Israeli private equity fund FIMI announced that it had acquired a 9% stake in the water technology company Amiad Water Systems. The price it paid was $2.60 for each share on the London Stock Exchange’s AIM. However, FIMI is not known for buying a minority stake in a company like that because short of control it can’t undertake the turnaround measures it typically conducts for its portfolio companies. As a result, FIMI could make an offer to controlling shareholder Kibbutz Amiad, which now holds 48.5% of its namesake company. Right now, Amiad has a market capitalization shy of $57 million, rather small and thus vulnerable to acquisitions.
Merger between SJW Group and Connecticut Water
The all-cash acquisition of all outstanding common shares of Connecticut Water by SJW Group for $70.00 per Connecticut Water common share will create the third largest water and waste water utility in the USA after American Water Works and Aqua America. The combined company will be called SJW Group. The revised transaction is expected to close in the first quarter of 2019. Even though the acquisition is funded through a mix of debt and equity, SJW group is expected to maintain a credit rating of at least ‘A-‘ (Investment Grade). The disadvantage in this merger lies in the accumulation of additional debt in an interest rising environment, whereas the big advantage is the acceleration of the company’s growth accompanied by the improving of the cash flow stability. Additionally, SJW Group calculates that it will be able to continue SJW Group’s robust dividend history and continue to pay an attractive and stable cash dividend to shareholders. Anyway, investors should start focusing more on the ‘healthiness’ of (water) utilities’ balance sheets because of growing interest rates.
US-Water Utilities as an appealing long term Investment
The water market in the Unites States is highly fragmented with 85 percent of people still get water from a public entity. As a consequence of this, investments in the water infrastructure have been deferred for too long. Since the government won’t be able to conduct critically needed water investments in the coming years due to growing budget deficits, public water utilities in the USA will be gradually handed over to private water companies like American States Water, American Water Works, Aqua America and York Water. As a result, those water utilities will gradually raise their customer base as well as their sold water volumes. Do not expect huge stock price rises in the coming years but do expect a steady and slowly growing dividend income.
Amiad Water acquires full ownership of its subsidiary in India
The Israel based water technology company Amiad Water Systems said it had acquired the remaining 40% of Amiad Filtration Systems India that it did not previously own. With this acquisition, Amiad is going to focus even more on the Indian water market which already faces huge challenges in terms of water shortages. Long term investors which seek to be exposed to the Indian water market should at least start to analyse the company more closely.
Consider SABESP as a long term Investment
SABESP is a water utility company operating mainly in Sao Paulo, Brazil and serves round about 26 million people with water and waste water services. However, its stocks have been declining in the last couple of weeks mainly due to a broader Emerging Market sell-off coupled with a devaluation of the Brazilian Real and political unease in Brazil with upcoming election. The devaluation of the Brazilian Real might be the biggest issue since SABESP owes quite a large amount of its debt in foreign currency like USD and EUR but its revenue is totally generated in Brazilian Real. This might lead to a lower profit but long term investors should literally see SABESP as a long term investment and take the change and consider SABESP as a buying opportunity. Its stable cash flow, which is underpinned by long-term agreements with most of the municipalities in the state of Sao Paulo and its low valuation with a P/E ratio of 6.4 and a P/B ratio of 0.86 makes it an attractive long term investment.
Still observe the Political Development in UK
The still opposition party ‘Labour Party’ aims to renationalise the railway, energy and water companies. Furthermore, it has suggested that stockholders might not receive full compensation in case these businesses are brought back under state control. The risk is that water companies might be nationalised at valuations lower than the prevailing market prices. In public, renationalising UK infrastructure businesses has even found favour. A poll by the Legatum Institute found that 83 per cent of respondents favoured renationalising the water industry that Margaret Thatcher sold in 1989. This is one crucial reason why UK water utilities have declined in the last month.
Why US Water Utilities are falling
US water utility stocks have been falling for some weeks even though the Dow Jones and S&P 500 look relatively steady. One reason for the decline are rising US interest rates. Utilities in general are often highly indebted and with rising interest rates borrowing money or rolling expiring credits just becomes more expense what eventually depress the profit. Take a look at Aqua America and American Water Works. Both have promised to grow steadily in the coming years by new acquisitions. However, acquisitions precede incurring new debts. Nonetheless, the U.S. government has signaled that it could imagine selling water management to private companies. The big US water utilities will definitely use this long term chance. Another reason is how utilities are perceived by the market. Utilities, in this case especially water utilities, are often seen as bond proxies. Now, with rising interest, conservative income investors can rather pick up bonds instead of utilities since the yield both securities offer are almost the same. A 10-year-US bond even offers a higher yield than some US water utilities' dividend yield.
Water Loss of big Water Utilities
The water loss of water utilities all around the world is partly enormous. Water loss due to leakages and ailing water infrastructure pipes depresses the profit of water utilities and is reason to act. Sabesp, the Brazilian water supplier, had a measured water loss of 30.7 % in 2017! The water loss for United Utilities in 2017 was 439.2 Ml/d. Golden State Water Company (a subsidiary of American States Water Company) has a water loss of round about 7%. Considering this, water infrastructure companies as well as companies which have specialized in leak detection might benefit from huge investments from water utilities to fix their infrastructure systems in order to reduce water loss.
As a UK Water Investor, keep an Eye on Labour Party
If you are invested in the UK water utilities like Pennon, United Utilities or Severn Trent, monitor the popularity of the Labour Party. Jeremy Corbyn, still leader of the opposition Labour Party, has pledged to renationalise the water companies. This would lead to a delisting of the UK water companies and is one crucial reason why these stocks have declined in the last month. Either way, the regulations for UK water companies will be toughened by Ofwat, the Water Services Regulation Authority, leading to lower profitability.