Investor’s handbook

Realising the significance of water in our life from recent drought in UK will mean differently to common consumers and investors. Although both of them could notice that it implies a higher water price, an investor is pondering how to make money from the price movement, while consumers are seeking to reduce water usage and cost.

Usually the water-related investment can be done in four different areas. The first one is no doubt water company, which supplies tap water to household and factory. The average water bill in 1989 was £120. It is now £376. Even allowing for inflation – the way the toothless regulator Ofwat prefers – bills have risen 45% above inflation or £116. So where’s the money gone? Profits. The last available figures on water company profits from Ofwat shows a staggering combined operating profit of £3.5bn in 2009-10, an increase of 7%. The companies’ pre-tax profits jumped from £1.8bn to £2.8bn – or up by 55%.

Starting a new water company may require a considerable sum of money to build plants and reservoirs, buying a stock of water company is more affordable to most investors with a limited budget. That’s the plan B. Index of water stocks, for example, Global Water Index (GWI) are showing how the global markets have moved. Based on the share price movements of water related stocks from around the world, GWI is weighted according to the market capitalisation and their exposure to the water sector, making it easier to track the whole industry.

Or you can dip into the business of bottled water. In Europe beginning in the late seventeen hundreds, it became fashionable to visit the natural mineral springs to either drink of the “healthful” waters or to bathe in them. The wealthy promoted and gathered at these “watering places” or spas which catered to their needs and their pocketbooks.  There are more than 150 British bottled water brands and the number of brands available in US is more than 100. If maybe the easiest way to start one’s own business but that also explains why the competition is extremely fierce. How to make your product outstanding in market is definitely the key.

Profit margins for the bottled water industry are favorable and higher than many other industries with some companies experiencing profit margins of nearly 30 percent. Most of the cost, more than 90 percent, in the industry goes not to producing the product, but to packing, shipping, marketing and distributing bottled water. The price mark-up on bottled water is as much as 10,000 times more per gallon than tap water.

There is one more option offering to those investors who spotted the future opportunity in water industry and could afford the huge spending on scientific research in a relatively long period. Desalination and Purification have become the top two subjects to scientists studying water. It is believed that they are the best way to meet the demand on water from about 7 billion people on the earth. Whoever equipped with the technology to desalinate or purify water in a cost-efficient way would no doubt be rewarded handsomely.



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