July 22nd, 2021 | 09:41 CEST
American Water Works, Memiontec, Rio Tinto: Solid Company operating in a booming region
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At home in Southern Germany, the passionate stock exchange expert has been accompanying the capital markets for about twenty years. With a soft spot for smaller companies, he is constantly on the lookout for exciting investment stories.
American Water Works: How valuable water can be
American Water Works is a classic utility company that operates in more than 45 US states and supplies customers in a district in Canada. The Company takes care of both fresh water and wastewater. Although water supply is less cyclical, American Water Works felt the pandemic: as more people were in their homes during the day, water consumption increased. An acquisition that brought the Company more than 45,000 customers also boosted sales.
In addition, American Water Works maintains a working relationship with the US military, supplying water to their bases and taking care of their wastewater. However, with a price-earnings ratio (P/E) of around 40, the stock is already expensive. Since the growth potential in North America, where American Water Works is active, also seems limited, the stock is not very promising. However, the Company is solid - the downside risk is limited.
Memiontec: Clean water, Made in Asia
Memiontec is a water share with much more growth potential. The Singapore-based Company relies on using various processes, such as technical, chemical and biological processes, to purify water. In addition to the prosperous city-state of Singapore, the most important markets for Memiontec are Indonesia and China. Here, Memiontec takes care of water, wastewater as well as their purification and builds corresponding plants. Memiontec has now been active in this field for 28 years.
At the end of April 2021, the Company had full order books with a volume of over 90 million Singapore dollars (SGD). Memiontec has increased its dividend by more than 20% each year for the past two years. On the stock market, the Company is currently valued at only around EUR 30 million. Given the growing demand for clean water and Memiontec's experience in Asian countries such as Indonesia and China, the stock is worth considering for speculative investors. Memiontec offers a robust utility business in one of the world's emerging regions and thus could be attractive to various investor groups.
Rio Tinto: Something still needs to happen here!
While companies like Memiontec stand for purifying water and turning dirty water back into drinking water in complex processes, companies like Rio Tinto stand for the opposite: Despite all ESG efforts, mining is still a critical industry from a water conservation point of view. Mines generally consume a lot of water and pollute it too. However, large companies, such as Rio Tinto, are increasingly being pushed by the market to invest in sustainability. Over a five-year period, Rio Tinto plans to invest USD 1 billion in climate projects. Around three-quarters of its energy already comes from renewable sources. Operationally, things are also going well for the Company, with sales and profits increasing significantly in the past fiscal year. However, due to fluctuating prices for raw materials, the business remains cyclical - in the current year, the figures are expected to be roughly on a par with the previous year.
Despite this vulnerability, or precisely because of it, Rio Tinto shines with an excellent balance sheet: an equity ratio of more than 50% and cash and cash equivalents in the double-digit billions speak a clear language. Nevertheless, the question must be allowed why the Company cannot invest these funds profitably and less cyclically. The share is solid and offers an exciting dividend yield of around 4.5%. Precisely because of the good numbers, Rio Tinto could do even more for sustainability and clean water.
Awareness of clean water is rising. Especially in growth regions, utilities often cannot keep up with population development, where innovative companies are needed. While the US Company American Water Works has little growth potential, Memiontec operates in a booming region in Asia. Although the share is the most speculative of all three stocks presented, it also offers the greatest potential - despite the traditionally solid water-related business.
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