Water – A Vision for the Future

 

Let’s start with a moment we all shared last week, a moment that resonated deeply here in Belgium. The final goodbye of Kevin De Bruyne from Manchester City. It wasn’t just a farewell to a football legend; it was a powerful image of legacy.

 

Kevin, once again, brought his children onto the pitch, sharing that emotional moment with the next generation. And behind his incredible career?

A club, a manager, and a player who had a plan, years in the making, delivering trophy after trophy. But more than that, they showed care for what comes next, for the future.

 

And that’s exactly why adding water to a diversified portfolio could be interesting. Because water isn’t just a resource, it’s the foundation of life, the legacy we leave for our children, and the key to a sustainable future.

 

Now, let’s bring this closer to home. Think about your daily life. The glass of water you drank this morning, the shower that woke you up, the food on your table; all of it depends on clean, accessible water. But here’s the reality: only 0.03% of the Earth’s water is easily accessible freshwater, and just a fraction of that is renewable. With 8 billion people relying on this tiny sliver, 43,000 km³ of water, for drinking, sanitation, irrigation, and industry, the pressure is immense. And the stakes are high.

 

The UNEP (UN Environment Program) tells us that 50% of the world’s wastewater is released untreated into the environment. UNESCO reports that 2 million tons of sewage and waste are discharged into our waters every day. Contaminated water claims thousands of lives yearly, and 2.4 billion people live in water-stressed areas. This isn’t a distant problem, it’s a crisis that touches every one of us, every day.

 

But here’s where the opportunity lies

Just like Manchester City’s success came from quality players, perseverance, and a clear strategy, the water sector may present a similar opportunity for investors seeking a blend of quality and potential. Think about leading names in the broad water sector such as Veolia, A.O. Smith, and American Water Works, each a powerhouse in their own right, much like the star players on a championship team.

 

Let’s start with Veolia, a global leader in water management and environmental services. Imagine a city like Paris, bustling with life, but facing the challenge of aging infrastructure and pollution (remember the Olympics?). Veolia steps in like a seasoned coach, transforming wastewater into reusable resources and ensuring clean water flows to every tap. They’re not just managing water, they’re safeguarding our communities, much like Kevin ensured his team’s legacy by mentoring younger players. Veolia’s work touches millions, from treating water for schools to supporting industries, making sure the next generation inherits a cleaner world.

 

Next, think of A.O. Smith, a name synonymous with innovation in water heating and treatment. Picture a cold Belgian morning when your kids are getting ready for school, and you turn on the tap for a warm shower. That comfort could well be coming from A.O. Smith’s cutting-edge water heaters and purification systems, which are in homes and businesses worldwide. They’re like the reliable midfielder who always delivers, ensuring efficiency and sustainability. A.O. Smith’s focus on energy-efficient solutions helps families save water and energy, playing their part in a future where resources are preserved for our children.

 

And then there’s American Water Works, the largest regulated water and wastewater utility in the U.S., serving over 14 million people. Think of them as the backbone of the team, much like a steadfast defender. They’re ensuring that communities, from small towns to big cities, have access to safe, reliable water. In states like Pennsylvania and New Jersey, where they’ve recently resolved major rate cases, they’re investing billions—like their $3.3 billion plan for 2025—to upgrade infrastructure. They’ve grown by adding 33,400 new customers through acquisitions in 2024 alone, showing the same perseverance Kevin displayed on the pitch. Their commitment to tackling challenges like PFAS contamination, with a $1 billion investment, ensures clean water for generations to come.

 

The water sector isn’t just about today, it’s about tomorrow, and the market prospects are compelling. The water analytics and quality monitoring market is set to grow from $4.4 billion today to $5.3 billion by 2026, a 5.5% CAGR. Industrial anti-scaling is projected to rise from $3.9 billion to $4.8 billion by 2028. And the PFAS treatment market is booming: testing is expected to grow from $2.5 billion in 2025 to $5.8 billion by 2030, a 15.07% CAGR, while water treatment will reach $2.18 billion by 2030. These figures show a clear demand and a massive opportunity.

 

Now coming back to Kevin De Bruyne and Manchester City. An important sponsor behind the team is Xylem. Xylem is a global leader in water technology, delivering solutions that mirror the precision and vision of a championship team. Xylem is part of this broader market that’s poised for growth.

 

Xylem is at the forefront of this movement, much like Kevin De Bruyne on the pitch. They’ve built a narrow moat through customer switching costs and intangible assets, like their Flygt brand, a leader in wastewater transport, known for reliability in mission-critical applications. Their Sensus smart meters and Evoqua’s water treatment solutions are helping utilities save over 50 million liters of potable water at places like the Etihad Stadium, as highlighted in the slide, “A Vision for Water.”

 

Xylem’s partnership with Manchester City isn’t just symbolic, it’s practical. They’re using harvested rainwater, digital platforms like Xylem Vue, and smart meters to reduce stormwater runoff by 100% by mid-2026. This isn’t just about winning today, it’s about ensuring the next generation inherits a better world.

 

Investing in water isn’t just about financial returns; it’s also about having impact. Xylem’s focus on sustainability, through data analytics that are saving million liters of water, mirrors the perseverance and planning that brought Manchester City their trophies. Their Q4 2024 results show this in action: revenues of $2.23 billion, up 7% organically, and an adjusted EBITDA margin of 21%, up 140 basis points year-over-year. They’re forecasting 2025 revenues of $8.6 to $8.7 billion, with organic growth of 3-4%.

 

While Xylem shows strong potential for long-term performance and sustainability, the company’s aggressive Non-GAAP accounting, which consistently inflates adjusted earnings by 30%-40% above GAAP through recurring “restructuring” costs and amortization adjustments, raises concerns and merits thus carefull consideration.  Additionally, its history of paying high acquisition multiples, such as 33 times EBITDA for Evoqua, and complex disclosures previously criticized by the SEC underscore the need for thorough evaluation by skilled investors.

 

Conclusion: Water a nice addition in a well diversified portfolio but mind the details

Water is deeply personal, it’s the water your kids drink, the rivers they’ll swim in, and the future they’ll inherit. Supporting profitable companies which balance strong financial results with quality, strategy, and a commitment to future generations, mirrors the teamwork and vision displayed on the pitch last week. 

 

So water as an investment theme in a well-diversified portfolio could be a thoughtful choice. Such firms play a vital role in sustainable water management while potentially delivering consistent returns due to the essential nature of their services. By exploring these opportunities, you align with a critical resource and a growing market, but careful attention to valuation and timing is key to maximizing impact and opportunity.

 

“This blog post does not contain personal investment advice. The information is general in nature and does not take into account your personal situation.

Investing involves risk, including loss of capital. Past results do not guarantee future results.”