The listed Duxton Water is set to be a recipient of a wave of new investors with 62 million options expiring at the end of this month at the same time water prices are expected to increase and competing fund – Blue Sky Water – faces further scrutiny.
Duxton, which has marginally outperformed Blue Sky’s Water Fund, also has cheaper management and performance fees than Blue Sky which last week had its investment rating downgraded by agency Zenith.
Duxton chairman Ed Peter said recent feedback about new investment in the Duxton water fund had been strong.
“Duxton Water has outperformed Blue Sky since Duxton listed and so if you can get into our fund at a discount to NAV why wouldn’t you do it?
“I have a meeting with some investors today who are looking to take a block of 15 per cent of our options.”
Duxton, which also operates the listed Duxton Broadacre Farms company, has seen the water fund’s share price hovering at about $1.12, options are priced at $1.10 and Duxton states its net asset value at $1.24.
The fund, which owns more than 40 gigalitres (40 billion litres) of permanent water entitlements, listed in September 2016 just as there was a spike in rainfall and supply of water in the system – enabling it to buy in relatively cheaply.
The fund has about 55 per cent of its entitlements leased out for a weighted average lease expiry of five years. This effectively hedges it from volatile pricing and is giving the fund a yield of about 6.2 per cent.
Director of water assets Alister Walsh said the fund wanted to increase the proportion of leased water entitlements to between 70 and 80 per cent.
The remaining share of entitlements would then be subject to market pricing, however Mr Walsh expects prices to improve.
“The market is predicting lower availability currently based on weather modelling from natural resource managers such as the Murray Darling Basin Authority which has historic data on flows,” he said.
“We have also noticed regions where pricing is stronger such as the Murrumbidgee where forward allocations of temporary water are about $200 to $230 per megalitre and that is being driven by the increased cotton production. There was a record summer crop there this year.”
For entitlements in the same area prices have also been rising. Allocations are cheaper than entitlements because they are a less secure way to obtain water.
In the Murrumbidgee prices for water entitlements have risen in the past year from about $1900 per megalitre to $2080 but last week an auction of an entitlement saw the price rise to $2350 per megalitre of general security water. High security water entitlements, which give the holder a higher priority when it comes to gaining access to water, have risen from $4400 per megalitre to $5100 in the past six months.
Mr Peter also said the latest Murray Darling Basin deal and the ongoing buying from the government would see pricing continue to rise.
“Policing more aggressively – making sure people are doing the right thing – will be exceptionally helpful,” he said.