Consolidated Water – Buy and Hold

Consolidated Water Co. Ltd. (the “Company”, or “CWCO”) designs, builds, operates, and in some cases finances seawater reverse osmosis (SWRO) desalination plants and water distribution systems in several Caribbean countries, where the supply of drinking water is scarce and the use of SWRO is economically feasible.  The Company was established in 1973 as a private water utility in Grand Cayman, the largest island in the Cayman Islands group, and obtained its first public utility license in the Cayman Islands in 1979. The Company is listed on the Nasdaq Global Select stock market under the symbol “CWCO”.

Consolidated Water is a small cap company, with a current market cap just north of $130 Million, trading at a P/E of 21.43.  The company has $9.15 of book value per share, and $2.76 of cash per share against a current price of $8.90 and pays dividend yielding 3.33% at the current price.

I consider CWCO a buy and hold for several reasons.

1. The company has large cash reserves and low debt.  CWCO currently has in excess of five times the cash on hand available than debt obligations. Aside from their ability to quickly meet any debt commitments, the available cash can be used to finance future expansions.
2. The management team has an ownership stake over 10%.
3. A decade long rise in dividends, from  5.25 cents per quarter in 2003 to 7.5 cents per quarter in 2012.

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Investing in Water

Water, the one commodity on the planet that everyone must have to in order to live.  Simply put, no water means no life. You would think that something so important would be thought of in much higher regard.  But for many of us in the developed world, we simply take water for granted.  Its always there when we turn the handle on the faucet.  This is not the case however for nearly 800 million people who lack access to clean water.  For these people water is a daily concern – will I get enough water today to drink and cook with and will it be clean?  So why does it not receive more attention and a top-billing status like other commodities and investments?

There is a finite amount of water on the planet and an ever increasing demand is starting to outstrip the current fresh water supply.  Great disparities exist between water rich and water poor regions.  There are those predicting that future wars may be over access to water.  These concerns have driven an increased awareness of water.  So what is the best approach to investing in water?  In my opinion, investment opportunities abound if you go with the flow.  So what do I mean by go with the flow?  Simply put, I break down water investing into three categories based upon how we get our water, use water and clean up dirty water.

WATER INVESTMENT CATEGORIES

• Infrastructure: Moving water around
• Water Treatment: Making more fresh or drinkable Water
• Wastewater Treatment: Cleaning water used by people and companies

Infrastructure

This category covers all aspects of transporting water to homes and companies and the subsequent transport of wastewater to treatment plants.    Items in this category include pumps, piping systems, and storage tanks.

Water Treatment

Treatment technologies and services that pertain to the treatment of water for human consumption (drinking), food & beverage preparation, and manufacturing or industrial processing requirements.  Treatment areas include, but not limited to, filtration, reverse osmosis systems, multi-process treatment systems,  disinfection equipment, chemicals and providers of treatment services.

Wastewater Treatment

Any treatment technology and service associated with the clean up of dirty or wastewater. This category would include things like the treatment of human waste, water treatment from factories, treatment of water generated from the production of oil & gas.

Researching trends, technologies, companies and people in these categories will allow you to invest with more confidence and provides diversification wtihin the overall water category.  Future posts will provide in-depth analysis of specific companies and market segments for each of these categories.  But this short introduction should get you thinking about how to approach your personal water based investments.

What experiences have you had with investing in the water industry?