Water stocks leave broader market behind

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Contagion-resistant water utility stocks were the best place to be this month, as the GWI Water Index outperformed major stock indices on every continent. Declines elsewhere were a catalyst for increased share buyback activity.

The defensive nature of many of the large-cap water utility stocks ensured that the GWI Water Index outperformed all major stock indices this month – despite the European contagion. The index returned -1.5%, again a 4.7% decline in the underlying MSCI World Index.

Solid full-year results from Severn Trent and United Utilities helped each stock to rise by more than 8%, with the promise of a £150 million special dividend from Severn Trent adding to the shine.

Aqua America, meanwhile, came out top of its peer group this month, rising 5.4%, partly thanks to a $16.7 million rate case settlement in its home state of Pennsylvania. The stock has done so well of late that Janney analyst Ryan Connors lowered his outlook from ‘buy’ to ‘neutral’ on 8th June. “While we believe Aqua America’s premium valuation is justified based on the company’s track record and regulatory footprint, we believe the stock’s recent run makes further near-term outperformance unlikely,” he wrote in a research note.

The top performer this month was Consolidated Water, most of the gains having come on the back of a 23 May announcement that the company had formed a joint venture which will own and operate a retail water utility in the Bahamas under an exclusive 25-year franchise agreement.

VA Tech Wabag, meanwhile, was boosted by an encouraging set of full-year results, posting a 40% year-on-year rise in profits after tax to INR737 million ($13 million) on revenues of INR14.4 billion ($255 million), up 16%. The group simultaneously declared a dividend of INR6.00 per share, a proportional increase of 50% on last year’s payout.

Hyflux was not so fortunate, and took the opportunity of a declining share price to step up its share buyback activities this month. The group has now repurchased more than 3% of its outstanding share capital on the open market since late last year.

Over in China, membrane manufacturer Beijing Origin Water received a boost as the Chinese government unveiled plans to develop a RMB100 billion-a-year ($15.9 billion) domestic membrane industry by 2015. The plan envisages ten major publicly listed membrane manufacturers in China by the end of 2015, and Motimo and Vontron are two of the names already on bankers’ lips. Beijing Origin stockholders also benefitted from some welcome extra liquidity this month, after the company completed a 7-for-10 bonus share issue on 11 May.

Further prospects for initial public offerings include Australian desalination company Water Resources Group, which expects to lodge its final submission to the SEC later this month ahead of a Nasdaq listing. Rio de Janeiro water utility Nova Cedae, meanwhile, is understood to be courting international legal advisors ahead of a planned IPO later this year which could raise at least $800 million. Cedae has been eyeing a public listing for several years, but was obliged to sort out its internal finances before coming to market.

Bottom of the heap this month was Canadian water solutions provider GLV, whose shares sank nearly 30% after the company announced a Can$40.9 million (US$42.0 million) impairment charge and negative EBITDA of Can$2.7 million (US$2.8 million) for the year ended 31 March 2012.