What are ASX water shares?
Water shares belong to a subgroup of companies listed on the ASX stock market tied to water treatment, irrigation, utilities, or water-related activities. This includes a broad spectrum of businesses, with business models differing depending on jurisdiction-specific regulations and levels of privatisation.
An investment in water can include investment in water assets, water treatment companies, and even plumbing suppliers.
The water supply industry is impacted by factors including population growth, government capital expenditure, farm production, and seasonal rainfall patterns. The price of water can vary dramatically depending on seasonal conditions, with lower prices in wet years and higher prices in dry years.
Governments increasingly seek to privatise or corporatise water networks, which means private sector participation will become increasingly important. Environmental, social, and corporate governance (ESG) concerns are also expected to have an increasing impact on the industry.
Why invest in them?
Life on Earth depends on the availability of water. Crucial to human survival and sanitation, water is a vitally important resource. Yet just 0.5% of the world’s water is fresh and available.1
About 97% of the Earth’s water is found in oceans, and it is too salty for drinking or agriculture. Of the 3% of water that is fresh, 2.5% is unavailable – locked up in glaciers and ice caps, too polluted, or too far beneath the Earth’s surface to be affordably extracted.
Demand for water has been increasing by about 1% annually since 1980.2 As with any other scarce commodity, this creates opportunities for investors. As demand for clean water increases, water treatment businesses have grown into an investable asset class, many with state-of-the-art technologies.
Access to fresh water is crucial to the health of populations worldwide, driving demand for the services of water treatment and water technology companies. This sector is expected to boom in the coming years as more countries seek solutions to ensure reliable supplies of clean water.
Top water stocks on the ASX
Water is not just a precious resource, it is an essential utility. This means companies in the water business can be utilities providers, but they can also be in the technology sector, utilising software to optimise water usage.
The ASX includes a handful of listed companies in the water business. They may operate across different ASX classifications, as water itself is not an ASX classification.
Here are three top ASX water stocks ranked by market capitalisation from high to low.
| Company | Description |
| Duxton Water Ltd (ASX: D2O) | Owns and manages a portfolio of water entitlements, providing water supply solutions to the irrigation community |
| Rubicon Water Ltd (ASX: RWL) | Water technology solutions company that provides farm and district irrigation solutions |
| Fluence Corporation Ltd (ASX: FLC) | A global pure-play water and wastewater treatment company delivering standardised solutions to a growing, decentralised global market |
Duxton Water
Duxton Water actively manages a portfolio of permanent water rights and uses this portfolio to provide flexible water supply solutions to Australian farming partners. It generates revenue by offering irrigators a range of supply solutions, including long-term entitlement leases, forward allocation contracts, and spot allocation supply.
In 2022, Duxton Water saw heavy rainfall and flood events cause challenges to irrigators and regional communities, particularly throughout the Murray Darling Basin region. Allocation prices tracked upwards toward the end of the year as irrigators sought to secure water ahead of the summer months.
At the end of 2022, Duxton Water had more than half of its permanent water portfolio (by value) leased to Australian farming businesses. This provides for visible revenue streams, enabling the payment of consistent dividends to shareholders.
Rubicon Water
Rubicon Water provides technology to automate the distribution of water and optimise gravity irrigation. The company’s solutions include autonomous canal control and precise water accounting software to ensure farms are reliably supplied with water as needed. It uses sensors and software to precisely monitor crop water demand, predicting optimal irrigation timing and applying the optimal amount of water.
Rubicon expects FY23 underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) to exceed $12 million. The sales pipeline continues to grow and progress, with a total pipeline worth $1.85 billion. Expansion of global production capacity has enabled delivery on expected future projects, reducing costs and shortening customer lead times.
Over more than a quarter of a century, Rubicon has built out an installed base of more than 30,000 remote sites, controlling water flow in more than 200 irrigation districts across many of the world’s major irrigation areas. These established customers provide the company with a solid recurring revenue base, which will grow as these districts continue to build and maintain their networks. In addition, the realisation over time of various pipeline opportunities across new and existing regions will deliver even greater earnings stability as Rubicon grows.
Fluence Corporation
Fluence provides water purification systems and water supply services for municipal wastewater treatment, industrial wastewater treatment, wastewater to energy, and water desalination markets. The business is focused on achieving recurring revenue with high internal rates of return via capital-efficient smart products.
Its flagship proprietary Membrane Aerated Bio Reactor (MABR) wastewater treatment solutions address a market opportunity worth more than $100 billion. Fluence has sold more than 300 MABR plants worldwide, with capacities ranging from a cluster of homes to city-scale.
In 2022, Fluence announced it had secured its first industrial water service contract in Cambodia. The containerised Brackish Water Reverse Osmosis (BRWO) system will deliver 1.2 million litres per day of pure water for both industrial and drinking needs.
Fluence will oversee the installation and commissioning in 2023. Coming on the heels of other wins in Taiwan and Korea, the Cambodian contract is yet another example of the company’s strong Asia pipeline materialising into signed water service contracts.
What to look for when buying water shares
The world must urgently tackle climate change and water scarcity issues. Demand on global water resources is increasing, with water shortage an increasing concern. Water treatment is a highly fragmented and growing industry driven by increased regulation and a sustainability focus. Digital transformation in the industry is improving business processes, and helping suppliers and customers make better decisions.
The industry is building intelligent asset management into water utility processes, resulting in an ever-increasing volume of information being available. The integration and organisation of this data can serve to maximise the efficiency of water consumption, bringing economic and environmental benefits by reducing costs and energy consumption.
The industry is also deploying artificial intelligence to help provide more sustainable management of water resources. It is using these technologies to ensure the availability and sustainable management of water utilities, allowing providers to optimise resource management. Australian water businesses are at the forefront of advances in the industry and are well-positioned to benefit from improvements in water management technology.
Pros of investing in ASX water shares
Sustainability tailwinds: The increasing global focus on sustainability is providing tailwinds to the sector and driving innovation in water treatment technologies.
Technological advances: Machine learning has considerable potential to automate processes that are costly to manage manually. 5G is opening up business opportunities that were not possible previously, thanks to its ability to connect millions of devices.
Diversification: Like oil and gold, water is a commodity. Investing in a water company can provide portfolio diversification.
And the cons
Regulations: Because of its importance to human life, the water industry is often subject to intense regulatory oversight, which can necessitate expensive compliance programs.
Infrastructure: Treating and supplying water requires expensive water infrastructure that needs continual upgrades and maintenance.
Are ASX water stocks a good investment?
Water is a key input into everything from beverages to agriculture to manufacturing, so it is one of our most essential utilities. The sourcing, distribution, and treatment of water is a multibillion-dollar global industry. Climate change impacts mean water shortages are expected to become more common in the future, and demand for the resource will increase. There has been a recent upswing in demand for investments that profit from the need for fresh, clean water.
At the same time, water technology is advancing at an accelerating pace, piquing investor interest. Whether ASX water stocks are a good investment for you will depend on your investment goals and financial circumstances. An investment in water stocks, however, can act as a hedge against the risks of climate change, as well as potentially provide handsome financial returns.
For investors who are not confident trading individual stocks, a water exchange-traded fund (ETF) such as the Invesco Global Water ETF (NASDAQ: PIO) or Invesco Water Resources ETF (NASDAQ: PHO) can provide broad exposure to the water market.
Unfortunately, no water ETFs are currently listed on the ASX. However, investors can access a number of them through United States exchanges.