A recent report by UBS splashes cold water on traditional investment themes, highlighting water scarcity as a top contender for the future. This $655 billion market is projected for steady growth, fueled by rising demand and a surge in infrastructure investments. In today’s FA Alpha Daily, we explore how Consolidated Water (CWCO) is positioned to profit from this growing wave of investment.
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Water scarcity and the ‘space’ economy have been highlighted in UBS’s latest report as two of their top five long-term investment themes.
This monthly report emphasizes broad ideas shaped by technological advancements, resource shortages, and societal changes.
According to Alexander Stiehler, head of Longer-Term Investment (“LTI”) Themes, the top investment opportunities are water scarcity, diversity and equality, space, food revolution, and consumer experience, listed in that order.
UBS evaluated these themes using valuation and momentum indicators to identify the most timely opportunities.
Water scarcity valued at over $655 billion, is expected to grow at a mid-single-digit annual rate over the next few years.
The largest category within this theme is wastewater treatment or water utilities, followed by equipment suppliers for water exploration, distribution, and treatment.
Over $50 billion has been allocated for water infrastructure through the 2021 Bipartisan Infrastructure Law in the United States.
This influx of capital is creating investment opportunities across the water sector for water utilities, engineering and construction firms, technology providers, and infrastructure funds focused on water.
Consolidated Water (CWCO) is well-positioned to capitalize on the growing U.S. water infrastructure investments.
As one of the largest water desalination operators in the Caribbean with over 30 years of experience, the company brings proven operational expertise to the U.S. market.
The company currently operates 31 facilities across Southwest and a manufacturing facility in Florida. It provides water and wastewater services to residential, commercial, and industrial customers under long-term concession and service agreements.
Consolidated Water’s business model focuses on long-term water supply and service contracts with municipal clients. These contracts provide stable, recurring revenue streams that are insulated from short-term commodity price fluctuations.
Many of the company’s existing contracts in the U.S. are also eligible for funding through the new Infrastructure Investment and Jobs Act.
This will enable clients to invest further in upgrading systems, potentially expanding the scope and duration of Consolidated Water’s service agreements.
The company has seen huge benefits from these investments with Uniform return on assets ‘ROA’ expanding from 5% in 2022 to a record high of 14% in 2023.
Management expects its total contracted revenue from U.S. operations to double within the next 3-5 years through organic growth and acquisitions.
This expansion will only increase as more investments flow into water infrastructure.
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Best regards,
Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research
The Uniform Accounting insights in today’s issue are the same ones that power some of our best stock picks and macro research, which can be found in our FA Alpha Daily newsletters.