Investment column: Thames Water still offers value despite short- term profits ebb

IT WOULD hardly strengthen Thames Water's appeal to Sir Ian Byatt, the water regulator, to post stellar financial results just three weeks ahead of the completion of his review into the industry.

Luckily, the UK's largest water company yesterday unveiled interim profits pounds 10m short of expectations. However, the shortfall reflected higher-than- expected joint-venture interest charges and investors need not take fright.

Thames must assume Sir Ian's draft proposals - an 11.7 per cent cut in water charges and a pounds 2.2bn investment obligation - will be made concrete when he publishes his report on 25 November.

Although analysts see the proposals slashing profits by 25 per cent next year, yesterday's results provide much reassurance.

Thames Water's non-regulated businesses, which include operations in the Turkish earthquake zone and Indonesia, are growing strongly. They increased profits by 22 per cent to pounds 29m - 15 per cent of the total. That confirms Thames Water's strength in securing high-margin business in areas of geological and political risk.

Replicating the success should not be hard - Thames charges a fee for its expertise and makes no capital expenditure.

In the half year, the group secured three new contracts and says it foresees several major ones in the coming months. Estimates value the global water market at pounds 150bn.

On the downside, Thames' ability to grow substantially by acquisition appear limited by the balance sheet, forecast to be geared at 75 per cent come the year end. Bill Alexander, the chief executive, says he has no plans to make UK acquisitions - in any case precluded by Sir Ian for the time being - though the US may offer some small opportunities.

Meanwhile, doubt surrounds the level of likely dividend cut following Sir Ian's impositions. Some analysts expect its historic growth rate of 9 per cent to fall to 5 per cent. Still, that preserves the shares' status as a decent yield play.

Credit Lyonnais expects pre-tax profits of pounds 417m and earnings of 82p per share this year, falling to pounds 310m and 79.6p in 2001, putting the shares, down 9p at 881p, on a forward price-earnings ratio of 11.

The prospect of a re-rating when regulatory uncertainty is removed, and the fast-growing international business make the shares a buy.

News
people
News
people And here is why...
News
peopleStella McCartney apologises over controversial Instagram picture
Arts and Entertainment
Richard Burr remains the baker to beat on the Great British Bake Off
tvRichard remains the baker to beat as Chetna begins to flake
PROMOTED VIDEO
News
The village was originally named Llansanffraid-ym-Mechain after the Celtic female Saint Brigit, but the name was changed 150 years ago to Llansantffraid – a decision which suggests the incorrect gender of the saint
newsWelsh town changes its name, but can you spot the difference?
News
i100
Sport
footballArsenal 4 Galatasaray 1: Wenger celebrates 18th anniversary in style
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
tv
News
people
Arts and Entertainment
Kristen Scott Thomas in Electra at the Old Vic
theatreReview: Kristin Scott Thomas is magnificent in a five-star performance of ‘Electra’
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Italian couples fake UK divorce scam on an ‘industrial scale’

Welcome to Maidenhead, the divorce capital of... Italy

A look at the the legal tourists who exploited our liberal dissolution rules
Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

The vintage series has often been criticised for racial stereotyping
Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

Llansanffraid is now Llansantffraid

Welsh town changes its name, but can you spot the difference?
She's having a laugh: Britain's female comedians have never had it so good

She's having a laugh

Britain's female comedians have never had it so good, says stand-up Natalie Haynes
Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

Let there be light

Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
Great British Bake Off, semi-final, review: Richard remains the baker to beat

Tensions rise in Bake Off's pastry week

Richard remains the baker to beat as Chetna begins to flake
Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

A look to the future

It's time travel fashion at Louis Vuitton in Paris
The 10 best bedspreads

The 10 best bedspreads

Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'