Investing in Water: Part 1

I recently saw the Hollywood blockbuster, ‘The Big Short’. Interesting movie, but this is not a movie review. I will preface this by highlighting this was based on a true story. Essentially Michael Burry, a hedge fund manager saw the subprime mortgage crisis coming, and decided to bet against the banks by shorting the mortgage bonds.

What happened is well known, especially among us investors. The economy crashed. The saddest part is that the banks, corporations and government don’t seem to have learned the lesson. But there remains opportunities to invest in.

The movie ends with Michael Burry’s new investment strategy. Water.

It makes plenty of sense. We have a finite amount of water, yet increasing population and consumption per person creates major strain on this resource. Our agricultural sector, the very sector that looks to boom over the next decade is reliant on it. But how can one invest in water?

This is part one, where I talk about a company called Webster Limited (ASX:WBA).

This is Australia’s fourth oldest company having built a name trading onions and walnuts, are now adding cotton to their mix (at the expense of onions). The company however has new ambition, which while centres on increasing capacity of walnut production (currently supply 1% of the global market) has the supplementary benefit of purchasing water rights.

Having relocated from Tasmania to the mainland ASX:WBA is focused on increasing the production and value added activities related to Walnuts, optimising the irrigation yields and secure water rights to ensure the viability of other agricultural investments. Adding water right via acquisitions like Tandou Limited adds assets to the balance sheet which will only appreciate as the demand for water increases.

During the past 18 months Webster has been growing and diversifying the water portfolio. At the close of FY15 WBA had 225 gigalitres of water rights that cover the three eastern states of Australia. Where in the past WBA have had to truck water from alternate sources, they can now supply from the internal capability.

Having built up the scale WBA are now well placed to expand capacity, introduce operational efficiencies and introduce their products to new markets. This is another agricultural player which stands to benefit from the growing Asia demand, and as such has found its way onto my watch list.

In our next article I will be featuring another company that has a focus on water. This is a fund which manages various assets, of which about 25% are water. If you want to be among the first to read it then subscribe below.

Read part two here.