VWTR Trades Above $15.75 Buyout Price As Shareholders Speculate On Superior Offers

By StoryTrading

Vidler Water Resources, Inc Is Trading at $16.25 at the time of publication.

The below article was written prior to this morning’s “definitive” merger agreement for VWTR VWTR to be acquired for $15.75 in cash.
Curiously however, the shares have traded higher than $15.75 throughout the day as shareholders may feel the stock is worth a lot more as described in the below article. This morning’s 8-K filed here, says that although the agreement is definitive with a no-shop clause, the company can still entertain unsolicited superior offers.
From the 8-K:
“The Company may under certain circumstances provide information to and engage in or otherwise participate in discussions or negotiations with third parties with respect to a bona fide, unsolicited written alternative acquisition proposal that the board of directors of the Company (the “Board”) has determined in good faith, after consultation with its financial advisor and outside legal counsel, constitutes or could reasonably be expected to result in a Superior Proposal”

Will VWTR get a higher offer? With a downside of just $15.75, it appears to be a risk-reward many investors are willing to take today.
Original article follows.
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The Western half of the United States is experiencing one of its driest periods in decades. In fact, some scientists say the West is the driest it’s been in 1,200 years.

The question is, how does the drought affect certain industries such as water, as well as tangential industries that rely on water for manufacturing, including semiconductors? 

StoryTrading contributor Mark Gomes has been following Vidler Water Resources Inc. VWTR closely to understand why it’s time to take a closer look at the Carson, Nev.-based company, and he recently provided our community with a VIP update through the lens of our four pillars: Fundamentals, Catalysts, Sentiment, and Technicals.

Overview

VWTR made its first water resource investment in 1995 when it acquired Vidler Water Tunnel and associated water rights in Colorado. Today, the company provides water development solutions for end users by identifying, acquiring, and developing water rights, often within fragmented agricultural markets, and over time converting these water rights to higher valued municipal and industrial uses.

VWTR is the largest private owner of water rights in Arizona and Nevada, two states affected significantly by one of the worst droughts in centuries. Arizona is also home to a growing semiconductor industry with the state attracting large workforces from Intel (INTC) and other players in the sector. 

A burgeoning population and the manufacturing of semiconductors require a tremendous amount of water.

Fundamentals

VWTR has been selling off water rights with ever-higher profits, year after year. In 2016, gross margins were just 48.5%, indicating a 2x return on their investments. However, 2020 and 2021 showed gross profits of 80%, indicating a 5x profit versus the price VWTR paid for the rights.

This has been an ongoing trend, with margins steadily rising from the 48.5% to 51.7%, 63.4%, and 71.1% in 2017, 2018, and 2019 respectively, culminating in the more-recent 80% levels.

Based on the latest market prices, VWTR is now reaping 5x, nearly triple the mid-2016 levels. Accounting for VWTR’s $5 special dividend in 2017, this implies a current fair valuation of $31.84 – $46.90 a share.

Due to its activist-controlled board of directors, the company will likely continue shedding assets and returning the proceeds  to shareholders (via buybacks and special dividends) until all the company’s assets are sold off.

Catalysts

Catalysts for VWTR include the following:

1. The West (including Arizona) is in the middle of one of the worst droughts in 1,200 years. 

2. Arizona continues to attract a growing number of citizens and semiconductor companies, including INTC and Taiwan Semiconductor Manufacturing (TSM), both of which require immense amounts of water. Over 24 new communities will be built, and according to CNBC, just one of those communities is projected to have more than 100,000 homes, bringing in at least 300,000 new residents. 

3. VWTR has been engaged in a massive buyback program (20% of the company’s shares) and/or special dividends (including the $5 per share VWTR issued near the end of 2017). After buying back shares valued at approximately $10 million in 2019 and 2020, VWTR only had the funds to acquire $3 million worth in 2021. However, management is now freshly-armed with $20 million from a recent asset sale. Most of this is expected to go toward a renewed round of buybacks (historically, the company has maintained a $10 million cash balance, returning the excess to shareholders via buybacks or special dividends).

4. VWTR is now expected to enter the Russell 2000, requiring Russell ETFs to purchase shares of the company valued at $20 million or more.

Additional catalysts include the approval of VWTR’s agreement with TMWA Truckee Meadows Water Authority in Reno, Nev. for the sale of up to 400 acre-feet of water credits from the Fish Springs Ranch inventory in northern Nevada. The agreement provides a regular stream of cash flow of $1 million per year for the next ten years. 

VWTR also announced late in 2021 that an alternative energy developer exercised its option to purchase Long Term Storage Credits from the company in Arizona. The purchaser’s parent company is actively involved in the Data Center and Green Hydrogen power space, and on the closing of the sale, VWTR’s water will provide the purchaser with a resource required to manufacture clean energy.

Sentiment

Investor sentiment is turning more positive for VWTR as a prolonged drought, a burgeoning population in Arizona, the company’s repurchasing of shares, and a rapidly growing semiconductor industry spark more demand for the company’s water.

VWTR’s involvement in the clean energy space also bodes well, as investors maintain a bullish outlook on the sector. 

Technicals

StoryTrading consults with technical expert Rex Man to identify resistance levels and bull targets. Following is his recent chart and analysis on VWTR.

Rex Man noted that “there is a trend breakout at the circle, which is why it (VWTR) is holding the 15s to 16s. That is also a nine-month cup breakout. Working out the 'handle' atm. I can see this rising gradually to break the 20s up till 25s possible.”

You can find more from Rex Man on Twitter.  

Summary 

The StoryTrading community empowers individuals to make the best-informed trade and investment decisions through a holistic view of stocks based on the four pillars of Fundamentals, Catalysts, Sentiment, and Technicals. Analyzing all four pillars together can also help identify key inflection points.

Recent catalysts at VWTR are sparking interest in the company, coupled with strong fundamentals, improving sentiment and technicals moving in the right direction.

VWTR can continue to sell water rights at such strong margins, as demand for its commodity continues to surge throughout the West. The question is whether VWTR’s water rights will continue to appreciate at an accelerating pace. That's for you and the rest of the market to determine. We'll be here to tell the story as events develop!

Disclaimer: The author does not have a position in VWTR, Contributor Mark Gomes Holds a Long position.