Bottom Line: Water proves its worth

WITH just Wessex's results to come next week in the water companies' interim reporting season, the privatised utilities have once again proven their worth as safe stocks.

Although on average they have grown dividends at less than half the rate of the regional electricity companies, they provide good yields that will become more attractive as interest rates fall further.

Southern Water, which yesterday produced the sector's most impressive set of figures, is among the most financially robust of the 10 companies. It had net cash of more than pounds 30m in the bank at the end of September, although heavy capital spending means this will fall sharply by the end of the year.

Its cautious approach to developing its non-regulated businesses has also paid off. Although small, they are generating respectable profits and actually produce net interest gains rather than the heavy financing costs being borne by most other companies' non- core divisions.

At yesterday's price of 660p, up 12p, the shares are on a prospective multiple of just above nine, based on forecasts of a pounds 128m pre-tax profit for the full year. That makes Southern the third most expensive stock in the sector. Given its fundamentals this is fair, but it is unlikely to move ahead sharply.

The same could be said for the water sector as a whole, which is still dogged by regulatory uncertainty. Ofwat has made it plain that it will continue to squeeze the companies to keep water charges as low as possible for consumers.

It now looks unlikely that the loosening of European Union directives on drinking and bathing water will greatly affect the companies' capital expenditure requirements. The real driving force behind these massive investment programmes is the urban waste water directive, which remains firmly in place.

As a result the sector will probably mark time, although its attractive yields - forecast to move beyond 5 per cent in the year to March 1995 - may keep interest alive, especially as the downside is limited.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific