Investing in Desalination Companies
Fresh water is often talked about as being “the next gold”, and for good reason. 97.5% of all water on Earth is salt water, leaving only 2.5% as fresh water. 70% of that fresh water is frozen in the icecaps of Antarctica and Greenland and < 1% of the world’s fresh water is accessible for direct human use. With agriculture being responsible for 87 % of the total water used globally, about one-third of the world’s population lives in countries that are experiencing water stress. This begs the question, how can we turn salt water into fresh water? The process of turning salt water into fresh water is called “desalination” and over 16,000 desalination plants have now been built worldwide:
With such a huge number of desalination plants being built, the question is where are they located? The below chart shows the distribution of desalination plants by country:
So just which companies are involved in building all these plants? The below chart shows the top engineering, procurement and construction contractors for desalination plants constructed between 2000-2011:
Can any of these companies provide pure-play exposure to desalination for investors? Let’s take a cursory look at the top-10 companies in the above list.
Veolia (NYSE:VE) is a $9.7 billion French company operating in 3 business areas: water, environmental services, energy services and transportation. Water management (not just desalination) represented 45% of the Company’s $28 billion revenues in 2013. Veolia has over 1,700 desalination plants located in over 80 countries.
Doosan Group is a South Korean conglomerate which is a member of the Fortune Global 500, and is involved in electrical power, construction, machinery, defense , houses, highways and bridges, chemicals, engines… and desalination.
General Electric (NYSE:GE) is a $256 billion conglomerate involved in what seems to be a little bit of everything as well as desalination.
Fisia Italimpianti is an Italian desalination company predominantly working in the Middle East. The Company is owned by Salini Impregilo (BIT:SAL), a $1.9 billion Italian construction company involved in large-scale infrastructure, such as dams, hydroelectric plants, motorways, railways, bridges, etc.
Degremont is a French company specializing in the production of drinking water with 10,000 facilities around the world. The Company is owned by Suez Environnement Company (EPA:SEV), an $8.8 billion French holding company. 49% of Suez revenues come from water treatment in France and Spain.
IDE is currently working on the Carlsbad Project in San Diego, the largest desalination plant in the western hemisphere when finished. The Company also worked on the Sorek Project, the world’s largest and most advanced desalination plant which comprises 20% of the municipal water demand in Israel. IDE is jointly and equally owned by Israel Chemical Ltd. (TASE:ICL), a global minerals and specialty chemicals company; and the Delek Group, one of Israel’s largest holding groups.
Acciona (BME:ANA) is a $4.3 billion Spanish conglomerate group dedicated to civil engineering, construction and infrastructure. Water and services make up just 9% of the Company’s $6.6 billion in revenues.
Hyflux is a $728 million Singapore company which built the SingSpring desalination plant that now provides 10% of Singapore’s drinking water. When the Tuaspring Desalination Plant is completed, 25% of Singapore drinking water will be provided by Hyflux desalination plants. The Company’s focus is on advanced membranes used for desalination with 1,300 membrane products and systems worldwide.
Befesa is a Spanish company predominantly involved in industrial waste management. In looking through their investor presentation, it seems that desalination is a small part of the Company’s overall business focus.
Sadyt/Valoriza is a Spanish water treatment company specializing in desalination with plants in countries such as Spain, Israel, Australia, Algeria, Chile, and Tunis. The Company is owned by Sacyr (BME:SCYR), a $2.7 billion Spanish construction and engineering company.
With the exception of maybe Hyflux, most of these companies are not pure-play opportunities to invest in desalination. Most are involved in various other business activities such that an investor would have far too little exposure in desalination to justify investing solely for that purpose. At most, 50% of revenues come from water treatment, and of that, an even smaller amount comes from desalination. The whole idea of a pure-play investment is to avoid taking unintended bets, on Italian infrastructure projects for example. In a future article, we’ll take a cursory look at the remaining 10 desalination market leaders. In the meantime, please feel free to plug any additional desalination companies into the comments section below.
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