This small cap has some big growth plans

One of the small caps I have recently started writing about regularly is Duxton Water Ltd (ASX: D2O). It’s a company which looks to purely own water entitlements and lease those entitlements to agricultural businesses.

Duxton Water hopes to profit over time from the income from the leases and also an increase in value of the water entitlements.

The share price of Duxton Water has gone on a strong run recently – it’s gone up by 15% over the past six months, plus dividends. It has done particularly well with the huge media coverage of the drought in regional Australia, which has led to a rise in water prices.

This afternoon, Duxton Water announced that on 5 September 2018 the Directors endorsed an increase to its debt facility.

Duxton Water is preparing its portfolio to enter into new long-term leases over the coming year. The new debt facility will give the company flexibility to respond to acquisition opportunities to expand its portfolio.

Management of Duxton Water believe that water assets are still undervalued and don’t fully reflect the long-term market and agricultural trends.

Whilst Duxton Water intends not to hold a significant amount of debt for a long time, it may help growth in the shorter-term. Primary debt to equity will remain under 30% of the portfolio value. At the end of August 2018 Duxton Water’s portfolio was valued at $134.5 million and it has a further $14.9 million of water entitlements in its contracted pipeline.

Management said that the company is actively managing its portfolio to ensure short-term returns are balanced against longer-term leasing opportunities.

Foolish takeaway

Duxton Water is one of my favourite ‘alternative’ ideas to invest it. It provides exposure to water scarcity and the theme of growing global food demand.

It’s currently trading at a 5% discount to the NAV reported at the end of July 2018 and offers a partially franked dividend yield of 3.8%. I’d be happy to buy a small parcel at today’s price to add my current holdings.

Another growth share that I’d be happy to buy today is this top ASX share that is expanding into Asia and just grew profit by 30% in FY18.

Breaking news: ASX companies set to raise dividends!

It's been a nail-biter of a reporting season here in the first half of 2018.

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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.

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