Water World

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 3

This post provided via Gary Scott, who sent the following to his newsletter readers a few days ago. 

International investments in water makes great business sense. The product is something everyone needs — in fact, after a few days you die if you don’t have it. Its uses are nearly unlimited: industrial, recreational, culinary, medicinal. There’s a limited supply, and an unceasing demand.

This is why we have been looking at international investments and water on this site for over five years.

Big trends in water are treating, purifying and providing it. About 85 percent of drinking water, and an even larger percentage of waste water services are provided by municipal-owned systems. Under the 1996 Safe Drinking Water Act many of these municipalities have to renovate their often antiquated systems. Many cities don’t have the money or the access to capital, so they outsource to profit-making companies.   

This is why last November we looked at Insituform Technologies, a leader in trenchless water line replacement. (See http://www.spottingtrends.com/investment/investment_natural_resources_9.htm).

Insituform’s share price has risen from $19.20 to $25.30 in this last three months since we wrote about it.

Today’s focus is in Europe which has had water problems even longer than in the US and has many companies that provide water services globally.  It should come as no surprise that Europe have some of the largest water companies.

France is home to some of these large water companies. One of these firms is Suez Lyonnaise des Eaux, formed through a 1997 merger between Compagnie de Suez (the company that built the Suez Canal and then became a bank) and Lyonnaise des Eaux (a water company with operations in the United States, Australia, Russia, Brazil, Spain and more). After the merger, the company’s name became Suez Lyonnaise des Eaux and was subsequently shortened to Suez in 2001.

Suez, trades on the Paris Bourse under the ticker symbol LY and several years ago adopted American business management methods, sharpening its focus and aiming to benefit shareholders, not just employees and managers.

In the summer of 2002, Suez merged its water and wastewater services into a division called Suez Environment.
Its water and wastewater business , is the second largest in the world. Suez provides water-related services to more than 115 million people worldwide. Its other business areas are electricity, natural gas, water and waste management. Suez also maintains interests in television and broadband distribution. In 2001, Suez was ranked 99th on Fortune’s Global 500, and in the same year it was ranked 19th in the world among companies with the greatest international presence, according to the United Nations World Investment Report.

Suez Environment supplies sustainable solutions for essential environmental services (water, sanitation and waste services) to industrial and individual customers around the world.

Their water services include:

   * Design, construction and startup of water treatment plants (drinking water, desalination, wastewater, and sludge treatment).
   * Production, treatment and distribution of drinking water.
   * Sewage treatment and sludge recovery.
   * Rainwater collection and treatment.
   * Optimization and complete management of the industrial water cycle.

Their waste services include:

   * Collection of domestic waste, non-hazardous and hazardous industrial waste.
   * Sorting, recycling and biological recovery.
   * Incineration with waste-to-energy recovery.
   * Landfill disposal of household and industrial waste.
   * Urban and industrial cleansing.
   * On-site and polluted-soil treatment.

SUEZ Environment did EUR 532 million in 2005 and recorded a +5.1% organic growth rate vs. +1.6% in 2004. This growth was driven by water in Europe (EUR 162 million, +5.1%) and international activities (EUR 169 million). Waste services in Europe (EUR 83 million, +1.8%). The firm recorded increases of 3% in France and 3.6% in the UK, while activity in Germany grew during the 2nd half.

Suez shares are also traded in Frankfurt, Brussles, Zurich and Suez ADRs trade on the New York Stock Exchange with the code SZE. The ADRS have traded between $26 and $37 in the last year and are in the $35 range now.

Suez is a natural resource blue chip of the world.

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A followup message a few days later takes a look at an investment trust focusing on the water industry:

Our messages have been looking at the potential of water investments for over five years. Our belief is that water is an investment commodity and its value will grow.

In the U.S. alone, water demand has tripled in the past 30 years, while the population growth has been just 50%.

The 2003 Needs Assessment indicates that community water systems and not-for profit non-community water systems need $276.8 billion over the next 20 years to install, upgrade and replace infrastructure.

There are many influences that should drive growth in U.S. water companies.

First, census figures show that the American population is growing strongly.  This increases the need for new or improved water infrastructure.

Second, there is a trend toward privatization and outsourcing of government water operations.

Third, the water industry is becoming increasingly sophisticated.

Fourth increased regulations regarding water creates opportunity in both the U.S. and abroad.

There is also growing consolidation in the water industry.

Water may be the most undervalued commodity in the market.

Plus this is a recession resistant, predictable and profitable industry. Yet which water companies should we choose?

Many investors prefer to leave the specific decisions to professionals. There are mutual funds and investment trusts that invest in water, such as the Global Water Equities Portfolio.

This is an investment trust focused on investing in the utility sector along with some foreign and small-capitalization companies, all doing business somehow related to water.

The trust is managed by Boenning & Scattergood, the oldest independent investment firm in the Philadelphia region.  This firm has been in business for over 90 years and has developed a particular expertise and knowledge of the water industry, including water utilities, filtration, equipment, chemical and engineering companies.

Boenning & Scattergood select the securities and provide ongoing support relating to the U.S. Water Equities Portfolio, looks for businesses that intend to operate in a socially and environmentally correct way. They search for those that earn primary revenues and growth from some aspect of the domestic potable water industry, including: water supply, pumps and pipes, machinery and equipment, filtration and purification, compliance and testing, utilities, metering and distribution, construction and engineering, wastewater treatment and recycling.

Recent portfolio holdings include:

CONSUMER DISCRETIONARY    3.00% of Portfolio
POOL SCP Pool Corporation

H E A LT H C A R E 1                 .9 5 %
Millipore Corporation

I N D U S T R I A L S               66.0 3 %
3M Company
A.O. Smith Corporation
Danaher Corporation
ESCO Technologies Incorporated
Flowserve Corporation
Franklin Electric Company Incorporated
General Electric Company
IDEX Corporation
ITT Industries Incorporated
Lamson & Sessions Company
Layne Christensen Company
Lindsay Manufacturing Company
Mueller Industries Incorporated
Pall Corporation
Pentair Incorporated
Pico Holdings Incorporated
Roper Industries Incorporated
URS Corporation
Watts Water Technologies Incorporated

MAT E R IAL S                             9.97%
Arch Chemicals Incorporated
Calgon Carbon Corporation
NLC Nalco Holding Company

U T I L I T I E S                         1 9.0 5 %
American States Water Company
Aqua America Incorporated
California Water Service Group
Middlesex Water Company
SJW Corporation
Southwest Water Company

This trust is offered by Claymore Securities, Inc. www.claymore.com

The code for this trust is CGWEAX.

Investors who want a broad spectrum of water investments should investigate trusts such as this.

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Gary is a guest author here at the SelfInvestors blog and provides a look into investing trends, specifically in world markets.  If you’d like to sign up for his daily newsletter or one of several seminars throughout the year in Ecuador and North Carolina, you can get all the info at his personal site.

Filed under Guest Author: Gary Scott by Tate Dwinnell

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Comments on Water World »

February 24, 2006

david @ 12:02 am

they’ve been saying “…invest internationally…” for years. i do agree that internationally there is still tons of opportunities; however, that does not mean buy ‘international’ stocks. invest in U.S. companies concentrating on building an international presence. I think those are the one’s that will prosper in the years to come.

Tate @ 7:58 am

Thanks for your comment David, I’ll disagree with you on this one. There are many US companies making inroads in the largest emerging markets but most of these companies are so large it probably isn’t going to have a significant impact for some time. I certainly wouldn’t be investing in a Walmart or GE because they are building an international presence. I personally could care less where the company’s headquarters is located as long as the company is growing sales and profits rapidly… much more often that company is originating from overseas. Many are beating the pants off of US companies in certain markets. The auto industry is a prime example – Toyota (TM) and Tata Motors (TTM) vs. Ford (F) and General Motors (GM), both of which are “trying” to build a presence overseas. The stock charts speak for themselves. In other industries (airlines, drug manufacturing)foreign companies provide the kind of growth (and in turn)stock price appreciation that you just can’t get with US companies. While my own investments include primarily fast growing US companies (such as True Religion (TRLG), FreighCar America (RAIL), Parlux Fragrances (PARL), etc.), in certain industries I’ll take the foreign company every time.

February 27, 2006

Gary Scott @ 3:10 am

To invest globally means look everywhere for opportunity. There should be no national distinction. We should invest where it is best..for us, for the market and for mankind.

The idea of nationality is actually a phony concept. The truth is we’re all folks trying to do a job. Thinking about nationality obscures what investors should really look at.

Warren Buffet, one of the world’s great investors, once confirmed the core points of investing:

  1. Invest in what you like and understand
  2. Invest in people you like
  3. Keep looking for new opportunities
    4: Look for businesses that are available at a good price

2005 marked the fifth consecutive calendar year in which emerging markets outperformed developed markets.

The Morgan Stanley Emerging Markets Benchmark gained 34 % in compared to the MSCI World Index of 9.5 %.

Over the last five years ending in December 2005, Emerging markets had a total return of 140 % compared to 11 % for major markets.

Why should we restrict our view to areas where growth is slow? Instead look everywhere!