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    Duxton Water Limited (ASX: D2O) (‘Duxton Water’ or ‘the Company’) is pleased to provide the Quarterly
    Activities Report for the period ended 30 June 2020. The purpose of this report is to provide an update
    on key areas of business activity during the quarter ended 30 June 2020. This report should be read in
    conjunction with the Company’s respective Quarterly Cash Flow Report (Appendix 4C).

    WATER PORTFOLIO UPDATE
    ENTITLEMENTS
    The Company continues to build a targeted portfolio of water entitlements
    primarily located in the southern Murray Darling Basin (‘SMDB’) and utilises this
    portfolio to provide flexible water supply solutions to our Australian farming
    partners. At 30 June 2020, the Company held approximately 83.7GL of permanent
    water entitlements across 19 different asset types and classes. During the March
    2020 quarter, the Company settled 66ML of permanent water transactions to the
    value of $0.34 million.
    Whist we have seen retracement in permanent entitlement values over the last
    couple of months, the value uplift experienced over the last 40 months reflects
    long-term drivers rather than the recent drought conditions. Irrigators have
    over the last 10 years significantly enhanced their marginal return per megalitre
    through both more efficient use of water and conversion to higher value
    commodities. At the same time, we have seen significant steps taken to return
    water to the environment with Government purchases of between 20-22% of
    entitlements that were previously available to the consumptive pool. The
    combined impact has seen stronger demand for a reducing available water
    supply and subsequent increased asset prices. Irrigators themselves have been
    the greatest beneficiaries from this capital appreciation as they collectively
    own the majority of water entitlements on issue in the market.
    ALLOCATION MARKET
    Through the 19/20 water year we saw significant pressure on available supply
    due to a 36-40 month period of below average rainfall and inflows. The water
    market facilitated the movement of available allocation between irrigators and
    industries to meet critical demand. Many irrigators took advantage of water
    supply products such as leases and forward allocation contracts to assist them
    in managing their water requirements. This assisted many in mitigating the
    impact of higher spot allocation pricing that was observed across the 19/20
    water year.
    Strong end of season demand for carryover saw allocation prices strengthen
    towards the end of June, from seasonal lows of $165 to $225/ML. Increased
    demand for carryover saw irrigators paying up to $80/ML for space to park
    allocation and bring it into the 20/21 water year. With low current storage levels
    and a lower than originally anticipated 3 monthly rainfall outlook, allocation
    prices opened the 20/21 water year trading between $350 to $400/ML.
    Duxton Water continues to actively manage its allocation portfolio to meet
    obligations to its farming partners through the provision of forward allocation
    and spot market allocation sales.
    LEASES
    The leased portion of the water entitlement portfolio is ~64.4%. This represents
    ~74.4% of the Company’s high security entitlement holding. The current
    weighted average lease expiry (WALE) remains at 2.7 years. Inclusive of renewal
    options this pushes the WALE to 5.0 years. The Company continues to work
    towards its long-term goal of having 70-80% of the portfolio under lease.
    FINANCIAL UPDATE
    NAV
    After several years of water entitlement values
    increasing, the market has spent the last 2 quarters
    consolidating prices as the underlying long-term
    demand and supply characteristics become more
    established and understood.
    In line with the permanent entitlement value
    retracement, the Company’s Net Asset Value (NAV)
    has declined over the quarter. The Company still
    holds significant fair value revaluation uplift
    (>$72 million) across the portfolio since inception.
    This uplift remains excluded from the statutory
    retained earnings position of the Company in line
    with the accounting treatment of water assets
    (AASB 138 – Intangible Assets).
    The Company’s NAV per share excluding tax
    provisions for unrealised capital gain has fallen from
    $1.91 at 31 March 2020 to $1.76 at 30 June 2020.
    DEBT
    At 30 June 2020, the Company had drawn debt of
    $107 million. In January 2020, the Company locked
    in a portion of its debt facility into an interest rate
    swap arrangement with NAB to take advantage of
    historically low interest rates.
    At 30 June 2020, the Company’s LVR (Debt to Water
    Assets) is ~33%.
    Duxton Water Limited (ASX: D2O) (‘Duxton Water’ or ‘the Company’) is pleased to provide the Quarterly
    Activities Report for the period ended 30 June 2020. The purpose of this report is to provide an update
    on key areas of business activity during the quarter ended 30 June 2020. This report should be read in
    conjunction with the Company’s respective Quarterly Cash Flow Report (Appendix 4C).
    DIVIDENDS
    The Board maintains its commitment to providing shareholders
    with a bi-annual dividend franked to the maximum extent possible.
    With the Company’s high percentage of leased entitlements, the
    Directors have advised the next 4 targeted dividends out to the
    March 2022 distribution.
    The Company has targeted fully franked dividend payments of:
    • 2.9 cents ($0.029) in September 2020;
    • 3.0 cents ($0.030) in March 2021;
    • 3.1 cents ($0.031) in September 2021; and
    • 3.2 cents ($0.032) in March 2022.
    Administration Fees ($65k) - fees paid for the provision of admin
    and finance related services.
    Management Fees ($714k) - management fees paid as per the
    Company’s Investment Management Agreement.
    Reimbursements ($43k) - on-charge reimbursements for D2O
    expenses incurred by DCA.
    Performance Fees ($3.87m) - part payment of FY19
    performance fee of $5.566 million (as per FY19 Annual Report).
    DUXTON WATER LTD DUXTON HOUSE. 7 POMONA ROAD STIRLING SA AUSTRALIA 5152 [+61]8 8130 9500
    Duxton Water Limited (ASX: D2O) (‘Duxton Water’ or ‘the Company’) is pleased to provide the Quarterly
    Activities Report for the period ended 30 June 2020. The purpose of this report is to provide an update
    on key areas of business activity during the quarter ended 30 June 2020. This report should be read in
    conjunction with the Company’s respective Quarterly Cash Flow Report (Appendix 4C).
    COVID 19
    The Investment manager and Board of Duxton Water Ltd continue
    to monitor the on-going Covid-19 pandemic.
    The Investment manager has put in place measures to ensure staff
    are able to continue to operate effectively whilst adhering to
    Government recommendations.
    This has enabled the day to day operations of the Company to
    continue with little impact and while the Board will continue to
    monitor and advise of any change, it does not currently foresee any
    significant operational impact to the business.
    PAYMENTS TO ASSOCIATES/RELATED PARTIES
    During the June 2020 quarter, the following payments to
    associates/related parties occurred (GST Inclusive):
    Duxton Capital (Australia) Pty Ltd or (‘DCA’):
    page 2 of 2
    This announcement has been authorised for release by the Board of Duxton Water Limited.
    ACCC
    On 30 July 2020, the ACCC released the interim report into
    the Southern Murray Darling Basin Water Market.
    The ACCC has spent almost a year reviewing the markets
    operation and engaging with key stakeholders. The
    Commission has had an ongoing role in monitoring the
    Australian Water Markets, having issued reports on its
    operation since 2012.
    Whilst the Company will review the in-depth report, on a first
    read we believe it is a thorough and well-balanced report.
    We note the ACCC has stated that:
    “Water trading has brought substantial benefits to water
    users across the Basin. Water markets allow irrigators to
    increase their water supplies, to earn income by selling their
    water rights when they are more valuable to someone else, to
    expand production, or to release capital for investment in
    their businesses. The benefit of water markets is
    demonstrated by the fact that, despite tough and volatile
    climatic conditions, the value of production from irrigated
    agriculture in the Southern Basin has trended upwards in real
    terms since 2010-11.”
    “Water investors, meanwhile, can help irrigators free up
    capital by buying and leasing out water; they can increase
    water market liquidity; and they can help irrigators manage
    water-supply risks, by providing water products such
    as leases and forward contracts.”
    We note the report has identified opportunities to improve
    the governance, regulatory and operational frameworks
    that support the Australian water markets. We believe that a
    focus in these areas will benefit all stakeholders and Duxton
    will actively engage in that process.
    The interim report can be found at:
    https://www.accc.gov.au/focus-areas/inquiries-ongoing/
    murray-darling-basin-water-markets-inquiry/interim-report

    courtesy of Bell Direct
    =============================================================================

    DYOR

    i hold D2O ( currently up 1% )

    not totally against topping up here but would need a LOWER price to do so

    1 like
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