Duxton Water Limited

Share Purchase Plan Reminder: Duxton Water Limited (ASX: D2O) released a reminder that the closing date for Share Purchase Plan (or SPP) is 5:00pm (AEDT) May 13, 2019 and the eligible Shareholders who are planning to take up new shares need to apply for SPP by the closing date. The company released April 2019 monthly update on May 8, 2019 and the highlights were that its NAV stood at $1.50 per share which includes dilution of the issuance of 10 million new shares in Placement which were allotted on April 29, 2019. The value of underlying water entitlements owned and managed by D2O, which mainly make up the NAV, is driven by the longer-term trends.


Net asset value per share- Since Inception (Source: Company Reports)

The Company stated that it had wrapped up share placement as a result of which it garnered AUD$15 million at an issue price amounting to AUD$1.48 leading to an increase in total shares on issue to 118.8 million. Also, there is a SPP which is in place that allows eligible shareholders to purchase up to AUD$15,000 of new shares at AUD$1.48 per share, a price which happens to be in line with NAV at March 31, 2019. The company stated that funds from the capital raisings would be utilised towards the acquisition of water entitlements as well as to cover costs related to placement and SPP. Excess funds, if any, would be utilised towards the payment of debt, as well as for the general working capital requirements. At April 30, 2019, the company was invested in around $239.4 million of water assets and the remainder of the portfolio was held in cash and net current assets. D2O has around 1,648 ML ($4.4 million) of water entitlements in the acquisition pipeline at April 30, 2019.

What To Expect From D2O: Duxton Water Limited manages a diversified portfolio of assets and the company is all set to meet the irrigator demand in both the short as well as long term. There happens to be a rise in demand for longer term water supply solutions, such as leases and forward contacts, and the company has been able to meet this with a number of new leases which will begin on July 1, 2019. With respect to dividends, the company has been maintaining the commitment to providing the shareholders with a bi-annual dividend. D2O is targeting a fully franked final dividend amounting to 2.8 cents (or $0.028), payable in the month of March 2020.

Stock Recommendation: The primary investment objective of D2O revolves around generating annual income via capitalising on increasing demand for scarce water resources. The company generates its income from the diversified portfolio of Australian Water Allocations and Water Entitlements. The company stated that key agricultural regions through the Basin remain hot and dry as the rainfall from the autumn break is awaited. The water storage levels are falling as total water storages in northern MDB stood at 8% and 43% in the southern as compared to 29% and 60%, respectively in the same time of last year. However, the stock of D2O has delivered the return of 7.80% in the span of previous three months and, in the time frame of one month, its return was -5.59% which reflects that the stock is quite volatile. Given the mix of scenario, we have a wait and watch view on the stock at the current market price of $1.475 (down 2.961% on 9 May 2019) and suggest to investors that they should wait for growth catalysts that can mitigate the prevailing volatility.
 

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