Investing in Water Scarcity

[Sleepwell]

Have not seen a thread on this, if there's one I'm happy to move it there.

 

Water scarcity and management is one of the biggest trends of the next few decades and there doesn't seem to be a lot of people paying attention to it other than your typical ESG guys. Not a whole lot of ways to play it, but a few names have come up from spinoffs over the the past few years.

 

There's different ways to get exposure to it and different sub-sectors have different economics and growth rates.

 

Here's an old Goldman primer that provides a good introduction. http://venturecenter.co.in/water/pdf/2008-goldman-sachs-water-primer.pdf

 

Some names are:

 

Xylem (XYL), Evoqua (AQUA) for Water technology and water treatment (utilities and industrial)

Pentair (PNR) for filtration solutions, pool products

Watts Water Tech (WTS), Mueller (MWA) for pumps, valves, plumbing, drainage, fire safety etc. (think of it as the hardware or piping)

Roper (ROP) has a smart-metering exposure through their Neptune subsidiary

Ecolab (ECL) industrial water treatment and cleaning solutions

 

Most of these guys are trying to incorporate some sort of software solution/IoT into their businesses but I haven't seen much traction yet.

 

Anyone following this space or have any thoughts?

 

 

 

[Tim Eriksen]

PICO Holdings (PICO) - water rights in Nevada and Arizona

JG Boswell (BWEL) - water rights in California and Australia

 

[Gregmal]

PureCycle

 

Now derisked with Phase I concluding in the next year, phase II overlap starting in the summer, almost $2B in eventual asset value, a debt free balance sheet, no question about profitability, and earnings that should compound impressively for the next decade at least...all taking place in a top MSA, 4 miles from DIA...

[Saluki]

Intrepid Potash (IPI) has water rights in New Mexico. They sell water to frackers. (I own a small amount of this).

Tejon Ranch owns lots of land (and water rights) in California. They rent out the land to vineyard growers and other farmers. 

[Convexity]

I am a casual observer of worldwide water trends, principally through circleofblue.org (I highly) recommend this web site). 

 

General thoughts:

- Upstream claims on water resources can decimate downstream claims (e.g. the ongoing fight on the Colorado River, which hydrates a huge portion of the American West)

- As mean sea surface temperatures continue to rise very gradually, stronger storms and higher full moon/storm surge tides occur

- A very large amount of water supply is controlled by municipalities (in the U.S.) with few for-profit opportunities

- Desalinization (desal) is a natural evolution of our water supply, but the cost is very high for now

- I do not see water rates skyrocketing as water is fundamental to human life.  I see this akin to the government subsidies and programs aimed at a stable U.S. food supply.

 

Re: investments, it is very likely that some of the best opportunities around water are tucked away (particularly desal) in industrial conglomerates or other entities.  For instance, Poseidon Water (U.S. desal leader) is owned by a Brookfield entity.  Lockheed Martin is also pursuing new desal technologies.  For those managing these segments there is no doubt a big compensation upside, but not at a meaningful enough scale to sway overall results at the parent entities.