Duxton Water Limited, page-3

So, I had a chat to one of the industry players last night on this. He says that the Duxton guys basically knew nothing about water trading until about 4 years ago. So while they are on the right track, they are far from industry leaders at this point. So I suspect there will be a fair bit of beta in this one rather than the alpha that the Blue Sky guys have been able to generate.

Also, apparently the company structure brings a few wrinkles to the equation that the Blue Sky guys do not face (being a different legal structure). If you look at the prospectus, it states that:
F) INTANGIBLES – WATER ENTITLEMENTS
Permanent water rights and entitlements are recorded at historical cost less accumulated impairment losses. Such rights have an indefinite life, and are not depreciated. The carrying value is tested annually for impairment as well as for possible reversal of impairment. If events or changes in circumstances indicate impairment, or reversal of impairment, the carrying value is adjusted to take account of impairment losses. The Company intends following the completion of the Initial Public Offering to consult with the ASIC in relation to measurement basis of the Water Entitlements. Present market practice is to adopt a cost model (which has been specified above). It is however the Company position that Water Entitlement Markets are now sufficiently mature that they would meet the definition of an ‘active market’, as outlined in AASB 138 ‘Intangible Assets’, which would permit the use of a fair value approach to the recognition and measurement of Water Entitlements.

My understanding (and I'm still getting my head around it) is that it has pretty big implications for the company balance sheet. This will further impact the issues around SP to NTA movement. We could see this one go to a big discount and throw up some opportunities on dividends. So I'm definately going to give the IPO a miss but watch closely!