Water index powers ahead, led by US

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A strong performance from the US equipment manufacturers contributed to a strong performance for the GWI Global Water Index this month. A sell-off in the UK amid a poor results season took the shine off.

 The American segment of the GWI Global Water Index continued its impressive rise this month, as our weighted global portfolio outperformed all the major stock indices to rise by 1.3%.

 
US equipment suppliers drove the American portion up to a new high of 106.6, with four companies registering double-digit gains (see 10 Best Performers).
 
Mueller Water was the pick of the bunch, as the shares rallied strongly throughout the period to pierce the $4.00 level on 10 December. CEO Greg Hyland took advantage of the new peak to sell a total of 38,848 shares in early December.
 
Pall Corp, meanwhile, leapt to an alltime high on 6th December after releasing a consensus-beating set of Q1 results. It also revised its pro forma EPS forecast for fiscal 2011 upwards to a new range of $2.48-2.63, versus its previous estimate of $2.35-2.55. The stock closed at $50.00 on 10 December – a far cry from the dark days of March 2009, when it dipped to just over $20.00.
 
Meanwhile, investors and analysts will get a better feel for how ITT and Pentair view their prospects for 2011 on 17 December, when both companies are slated to introduce 2011 earnings guidance.
 
The Invesco PowerShares Water Resources Portfolio (PHO) celebrated its five-year anniversary on 6th December. Launched in 2005 as the world’s first ever water-focussed exchange-traded fund, the portfolio – which tracks the underlying Palisades Water Index and invests in listed US companies with significant water exposure – has returned 36.1% over the last five years, against 7.9% for the S&P 500 index over the same period.
 
While Invesco may be happy to crow about the PHO’s performance in the United States, it is equally keen to grouse about the way in which it believes equity investors in UK water companies are being treated by the regulator.
 
Even before the UK water and sewerage companies released their half-year results, which in many cases showed a disappointing slide in profits; (see commentary p8), Invesco Perpetual quietly reduced its exposure to the sector, selling the majority of its stake in Severn Trent in September, before shedding the bulk of its £320 million holding in UU in late November, and simultaneously effecting a partial exit from Northumbrian Water. Pictet may have beaten Invesco to the door in terms of lightening its exposure to UK water plc, but with Ofwat predicting an increased reliance on new equity for the water companies in the new asset management period, the fact that one of the most influential UKbased players has shown the sector the cold shoulder should surely mean the regulator has to sit up and listen.
 
The current focus in terms of new equity issuance is most assuredly the Asia Pacific region, as Hyflux prepares to launch its bonus share issue, while Bio-Treat Technology’s rights issue is set to commence trading on 24 December.
 
Aussie desalination specialist Water Resources Group, meanwhile, is preparing to list its shares on the Australian Stock Exchange via an A$25 million (US$25 million) IPO later in December. Australia is desperately short of investable home-grown water companies, but don’t expect a rush of deals to market. The ‘other’ Aussie desal specialist, Osmoflo, is rumoured to be on the verge of announcing a deal with a new strategic investor, though it shows no signs of wanting to go public – yet.