Income Investors Eye Duxton Water IPO
The portfolio of water rights is forecasted to deliver a weighted average gross yield of 5.9%, with potential scope for capital growth over the long-term.
Duxton Water Limited is an Australian investment company focused on water investments. The company owns a portfolio of “Australian Water Entitlements”, which the company leases to producers, who in return pay annual rent to the Company. At completion of the offer, Duxton Water will own and manage an initial Water Entitlement Portfolio valued at $38 million. The company seeks to raise $99 million by issuing 90 million shares at $1.10.
The portfolio of water rights is forecasted to deliver a weighted average gross yield of 5.9%, with potential scope for capital growth over the long-term. Upon settlement over 88% of the existing portfolio will be leased back and the company intends to declare the first dividend within the first 12 months of listing. Income visibility is high with an average lease term of 7 years.
However, the company carries a concentration risk as its entire portfolio is invested in Australian Water Entitlements. Water price indices have been rising for the past four years and there is a risk that this may present a cyclical peak. Lease concentration is high as upon listing ~86% of lease revenue is being paid by one lessee Duxton Viticulture.
The listing offers investors the ability to gain exposure to the Australian water market, which has historically shown a low correlation to high risk asset classes. Capital growth will depend on rising water prices, which is not assured. While capital growth may be limited we believe that the IPO provides an attractive income opportunity to investors looking for yield.
Company: Duxton Water Limited
ASX Code: D2O
Shares on Offer: 90m
Listing Price: $1.10
Market Capitalisation: 127.7m
Listing Date: September 21
Author: Simon Herrmann
Sep 12, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.