Last week, small cap Duxton Water Ltd (ASX: D2O) reported its half year result for the six months to 30 June 2018.
As a reminder, Duxton Water owns water entitlements and leases them out on either short-term or long-term contracts.
The company revealed that revenue grew by 348% to nearly $8 million on the back of higher prices for the water leases and additional water entitlements owned in its portfolio.
Net profit after tax (NPAT) grew by 20% to $1.17 million. The rise wasn’t as strong as revenue growth due to an increase in cost of sales, performance fees paid to management thanks to Duxton Water’s strong performance and an impairment of water allocation.
Earnings per share (EPS) grew by 6.67% to 0.016 cents and the dividend was increased by 8.7% to 2.5 cents per share from 2.3 cents a year ago.
Duxton Water’s portfolio received a $15.8 million uplift in valuation thanks to water price rises.
In the six months since the end of its 2017 financial year, Duxton Water’s fair market value balance sheet showed a 36% increase in total net assets to $114.3 million. The fair value is important because businesses show the water entitlements at cost on their balance sheet, not the current price – the fair market value – they could get for them.
The net asset value (NAV) per share increased by 8.2% to $1.277 in the six months to 30 June 2018.
The January to June period was one of the driest on record, with irrigators drawing down on the carry over and allocation reserves that had been built during the wet spring of 2016. Many irrigators overused their allocation, therefore they had to buy entitlements to avoid fines.
Duxton Water is confident that with its current water entitlement portfolio and weighting towards high security entitlements, it is well positioned to support its tenants and other irrigators through the remainder of this water year and beyond.
Duxton Water seems fairly valued now that its share price has caught up (and overtaken) the last monthly update of NAV. However, it may still be able to create pleasing growth over the coming years as water entitlements become more valuable with growing demand for food and drier conditions.
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Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.