Duxton Water Ltd (ASX: D2O) wants to raise $58.7 million at $1.30 per share to buy additional water entitlements.
It is launching a 1 for 2 accelerated non-renounceable entitlement offer to finalise already contracted assets, continue to acquire additional water entitlements and cover the costs of the offer. Any leftover funds will be used to pay down debt.
Who is taking part?
Institutional investors will be tapped for capital today and tomorrow, whilst regular retail investors will have between 24 October 2018 and 16 November 2018 to invest.
Duxton's largest shareholder, Duxton Vineyards – which holds around 38% of Duxton Water – will not be taking part. Potential new shareholders will be offered to take part instead.
Duxton Water is currently in a trading halt whilst the institutional offer occurs, the halt will end on 19 October 2018.
Is the offer a good discount?
The offer is priced at a 3.7% discount to the last closing price of $1.35 and it's only a 2.5% discount to the theoretical ex-rights price of $1.33.
Any discount is welcome, but it's not priced at a hugely attractive discount.
Is Duxton Water a good investment?
In roughly two years Duxton Water has delivered a total shareholder return of 32.6% according to the company, which includes capital gains, dividends and franking credits.
I like Duxton Water as a small cap idea – it acts as an attractive proxy for the Australian agriculture sector. Its water entitlements are leased to a variety of farmers and it's benefiting from the current dry conditions in regional Victoria and New South Wales.
Water demands are steadily shifting towards more permanent crops like grapes, fruits and nuts which require more water but are higher value, which should support sustainably higher water prices.
Duxton Water only holds about 1% of the entitlements available for consumption of the Murray Darling Basin region, Duxton Water can expand substantially beyond its current size. Federal and State Governments hold the 'non-available' water entitlements.
Should you take part in the offer?
I won't be taking part immediately. If the share price falls below $1.30 during the offer period then you may as well buy shares on the market. However, if the price stays at $1.35 or above then I may decide to buy a few more shares.
I think Duxton Water is a good long-term alternative asset idea and I plan to hold its shares in my portfolio for many years to come.
