Duxton Water Limited reports a $22 million increase in its water portfolio value for December 2024, driven by strategic acquisitions and rising allocation prices amid persistent dry weather in the Murray-Darling Basin.
- Portfolio value rises to $392 million with 91.5 GL water entitlements
- Net asset value (NAV) at $1.54 per share post-dividend payout
- Allocation prices increase due to warm, dry conditions and peak irrigation demand
- 37% of water entitlements leased with lease portfolio expanding
- Government water buyback program progressing, impacting market dynamics
Portfolio Growth and Market Context
Duxton Water Limited (ASX: D2O) has reported a notable $22 million increase in the value of its water portfolio during the December 2024 quarter, bringing the total portfolio value to $392 million. This growth was primarily driven by recent acquisitions of water entitlements and a rise in allocation prices, reflecting the company’s strategic expansion in a challenging environmental landscape.
The portfolio now holds 91.5 gigalitres (GL) of water entitlements, a new high for the company, underscoring its commitment to building a diversified and permanent water asset base. This expansion supports Duxton Water’s core objective of providing flexible water supply solutions to Australian irrigators, particularly in the southern Murray-Darling Basin (sMDB).
Environmental Pressures and Market Dynamics
Persistent warm and dry weather conditions across the sMDB have contributed to the lowest dam storage levels since 2020. These conditions have tightened water availability, pushing allocation prices higher during the peak irrigation season. Spot water prices surged notably in the Murrumbidgee catchment, ranging between $200 and $235 per megalitre, while prices in the Murray and Goulburn catchments saw more moderate increases.
Despite these pressures, the Ricardo Entitlement Index (REI) saw a slight decline of 0.4% over the quarter, reflecting mixed movements between general security and high security entitlements. Transaction volumes were subdued in Victoria but elevated in New South Wales, with general security entitlements dominating market activity.
Financial Performance and Dividend Policy
Duxton Water’s net asset value (NAV) closed at $1.54 per share post-tax, a marginal decline of 3 cents from the previous quarter largely due to the payment of a fully franked dividend of 3.7 cents per share in October 2024. The company has maintained a consistent dividend track record, marking its 15th consecutive dividend payment and distributing 7.3 cents per share fully franked over FY2024.
The company’s net debt to water assets ratio increased slightly to 31%, remaining comfortably below its 40% covenant limit. Duxton Water also continued its on-market share buyback program, repurchasing 736,000 shares at an average price of $1.35 per share during the quarter, signaling confidence in the underlying asset value.
Strategic Acquisitions and Leasing Outlook
During the quarter, Duxton Water secured several contracts for additional water entitlements, including a sale and leaseback arrangement extending to 2034. These acquisitions enhance portfolio scale and diversification, reinforcing the company’s long-term value proposition.
At quarter-end, 37% of the portfolio was leased, a slight decrease due to portfolio growth. The company remains optimistic about leasing demand for the upcoming water year, driven by increased interest from irrigators seeking leases commencing July 2025.
Government Initiatives and Market Outlook
The Commonwealth Government’s water buyback program, legislated under the Restoring Our Rivers Act 2023, continues to influence market dynamics. The government aims to recover 450 GL of water for environmental purposes by the end of 2027, with a recent tender attracting over 1,000 submissions for a 70 GL allocation. Market participants await further details on this tender, which closed in September 2024, as it may impact entitlement values and trading volumes.
Looking ahead, Duxton Water’s strategic positioning in a tightening water market, combined with its disciplined financial management and active portfolio expansion, positions it well to navigate the evolving landscape of Australian water resources.
Bottom Line?
Duxton Water’s steady portfolio growth amid environmental challenges sets the stage for navigating a complex water market shaped by government interventions and climate pressures.
Questions in the middle?
- How will the government’s water buyback program affect Duxton Water’s entitlement values and leasing demand?
- What impact will ongoing dry conditions have on allocation prices and portfolio income in the next quarters?
- Could further share buybacks signal undervaluation or a strategic capital management shift?