Ive been buying water all my adult life, but only recently have I thought about investing in it. The water market may seem like an unlikely topic for speculation, but there is money to be made there.
I recently came across a publication called the Water Investment Newsletter (a publication of US Water News) that specifically targets investors in the water market. And I regularly receive reports from Fitch IBCA on the status of bonds for water utilities.
Fitch recently assigned its "AAA" rating to the Colorado Water Resources and Power Development Authoritys $179 million outstanding clean water revenue bonds. The rating is Fitchs first for bonds backed by funds of Colorados clean water state revolving fund (CWSRF). Fitch likes the bonds because the revolving fund has a "diverse, creditworthy loan pool and high rates of reserve fund collateralization."
High rates of collateralization and a captive customer base is why Ive been attracted to publicly traded water utilities. Examples are Philadelphia Suburban Corp. and Southwest Water Co. Philadelphia Suburban is the nations second largest investor-owned water utility (behind the American Water Works Co.) and has a growth-through-acquisition strategy. Since 1992, PSC has purchased 27 water systems while still providing record earnings and above-average shareholder return, according to its press releases.
Southwest Water recently announced that 1998 was the fourth consecutive year that its net income had grown. It recorded a 26-percent increase in diluted earnings per share. While thats high, most water utility stock has performed very well in the last few years, posting respectable annual gains.
Techknowledgey Strategic Group publishes an annual water issue of its Environmental Benchmarker & Strategist. The publication looks at water companies in various parts of the market, providing basic information on the profitability, valuation, leverage and operational status of some of the larger water companies.
The publication divides the companies into such categories as engineering services; filtration, separation and treatment; instrumentation and monitoring; integrated services and products; utilities; and miscellaneous.
The Group sees good business opportunities in the high-purity water segment of the industry, in desalination, wastewater recovery and reuse, and residential and bottled water. The Municipal industry market also is strong, with opportunities to replace or upgrade existing infrastructure in developed countries and provide basic water treatment services in developing countries.
