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Consolidated Water Company Limited (CWCO) is in a Most Relevant Contemporary Business

The Water Utilities Industry is a vexing for one for the average stock investor. The business relates to a product for which there is no uncertainty in demand. The questions about such stocks relate to margins and profitability. Demand, in this case, is theoretically insensitive to price, however, the dominance of government bodies as direct customers places high pressures to keep costs low. Here is a company that seems to have developed a financially attractive business model for the water supplies industry.

There are two major factors in favor of this stock. Firstly, it has a divisional structure, which allows separate approaches to retail, wholesale, and services prospects. The company’s established track record in building and operating desalination plants supports the separation of services from water sales. The latter is offered to a mix of homes, industries, local administration bodies and resellers.

A second significant factor for the stock is the company’s base and prime area of operation in the Cayman Islands. This is a top tourist destination for travelers from the United States and other parts of the world. Demand for potable water will remain strong in this resort zone even if GDP growth continues to be sluggish in the mainland across the Atlantic. The management has done well to expand steadily from its base in the Cayman Islands to the Bahamas, and to neighboring parts of South America.

How do the structural strengths of the business translate into financial performance? 2007 has been a record year. Total revenues have grown by nearly a third over 2006. The services business has led from the front, with an annual growth of nearly three times. A new desalination plant project bodes well for 2008.

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