by Debra Fiakas, CFA
The post “Water: Invisible Crisis” introduced a new series on water supply in Latin America, describing the lack of access to quality water despite a bountiful supply of rainfall and snow melt. As the series has unfolded we have learned that water supply in Latin America is largely a local government undertaking. Investment opportunities are limited to water management companies that sign on to operate government-owned infrastructure or water treatment solution providers.
Water supply to the north has inched further into the commercial realm. A discussion of water investment would not be completed without a look at private water suppliers in the rest of the Americas.
The only one in the group to lay claim to market share in Latin America is Consolidated Water (CWCO: Nasdaq), which operates desalination plants in the Cayman Islands and Bahamas. In 2018, Consolidated began developing a seawater desalination plant in Rosarito, Baja California in Mexico. The company uses reverse osmosis technology in its plants. Reverse osmosis is notoriously energy hungry so Consolidated has deployed energy recovery devices from Energy Recovery (ERII: Nasdaq) to reduce energy costs at several of its plants.
Consolidated is a small company, reaching $69.2 million in total revenue in the most recently reported twelve months. However, it converted 21% of sales to operating cash flow. That helps support nearly debt-free balance sheet and an ample dividend. Consolidated shares trade at the lowest forward multiple in the selected group of water stocks listed in the tables below. At a forward PE of 24.0 and a forward dividend yield of 2.1% the stock has some appeal, despite the small size of the company.
If you are the sort of investor for whom size matters, American Water Works (AWK: NYSE) will be the best choice from among stocks in this group. American reported $3.6 billion in total sales in the twelve months ending September 2019, on which it collected $1.3 billion in operating cash flow. The company needs the cash to service its hefty debt load. Aside from Global Water Resources (GWRS: Nasdaq) and its unique situation, American Water Works is the most leveraged among the selected water stocks. The debt load has not dissuaded leadership from generous dividend payouts. At the current price level, the stock offers shareholders a forward yield of 1.7%.Service Ar
Global Water Resources reported $180.1 million in long-term debt at the end of September 2019, a hefty debt load given its business base. That said, management is aggressively executing on a growth strategy. In August 2019, Global Water announced agreements with the City of Coolidge, Arizona and Saint Holdings, LLC to provide water, wastewater and water recycling services. Coolidge is a bedroom community adjacent to Phoenix. Saint Holdings is privately owned land development company that recently sold land near Inland Port Arizona to Nikola Motor Company for a proposed mega-manufacturing plant. When fully approved and operational, the agreements will bring to fourteen the number of water, treatment and recycling utilities under Global Water Resources management.
|American States Water||AWR||California||$471.9M||$112.7M|
|American Water Works||AWK||Northeastern U.S. and Canada||$3.6B||$1.3B|
|California Water Services||CWT||Calif, Wash St, NMex, Hawaii||$705.1M||$187.7M|
|Consolidated Water||CWCO||Cayman Islands, Bahamas||$69.2M||$14.2M|
|Global Water Resources||GWRS||Phoenix, AZ||$35.0M||$12.3M|
|Middlesex Water Co.||MSEX||New Jersey and Delaware||$135.1M||$36.4M|
|York Water||YORW||York & Adams County, PA||$50.6M||$17.5M|
|American States Water||AWR||$86.00||$3.2B||1.4%||39.00||82.00|
|American Water Works||AWK||$120.00||$21.9B||1.7%||31.00||149.00|
|California Water Services||CWT||$51.00||$2.5B||1.5%||33.00||130.00|
|Global Water Resources||GWRS||$12.50||$264.8M||2.3%||78.00||435.00|
|Middlesex Water Co.||MSEX||$63.00||$1.1B||1.6%||31.00||108.00|
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.
This article was first published on the Small Cap Strategist weblog on 12/17/19.