Investment Column: There are better water punts than Northumbrian

Sportingbet; Alterian


Our view: Hold

Share price: 245.25p (-3.25p)

We have covered a number of the regulated water companies in the last few weeks and devoted readers will know that generally speaking we rather like the clarity of earnings and, of course, the dividends that most offer.

And much like Pennon yesterday, in principle we also like Northumbrian Water. The group issued its preliminary numbers yesterday, saying that sales volumes were not falling any faster than during last year, with pre-tax profits, which were down 10.3 per cent to £152.7m, ahead of expectations.

Unlike Pennon, which disclosed an increase in adjusted profits, we are not buyers of Northumbrian, however. The experts at Evolution say buy, arguing that "Northumbrian's conservative dividend payment in relation to regulated business capability means [it] is more secure than that of Severn Trent or United Utilities". We generally applaud conservatism in these markets, and indeed like the water groups for that very reason, but we are happier backing those that offer the better returns.

The finance director, Chris Green, argues that the dividend is not more conservative than others and, anyway, with business plans submitted to Ofwat for 2010 to 2015 trading, the dividend policies of all the water companies will change. Northumbrian is better than the others because of its environmental credentials and because it has been credited with a number of external awards, he adds.

Northumbrian will benefit from lower interest charges on its index-linked bonds over the next year and has seen its energy costs fall. Another plus is that Northumbrian will generate 20 per cent more of its own energy in future from its creditable renewable efforts.

Being bearish, we are buyers of the water groups generally, but expect investors to do better from others in the sector, especially Pennon. Hold.

Sportingbet

Our view: Speculative buy

Share price: 62.5p (-1.5p)

Investors fancying a flutter should look no further than Sportingbet, the online sports betting and gaming group.

On the face of it, Sportingbet should be a raging buy. The group issued stellar third-quarter trading figures yesterday, with operating profits up 34 per cent to £9.8m. The chief executive, Andy McIver, says he is cautiously optimistic about the future. Investors who bought at the start of 2009, when the stock was wallowing around 30p, have already cashed in and, with the shares still trading at a chunky discount to the rest of the sector, ordinarily they should be worth a punt.

Most will have guessed there is a but. The company is still in talks with the US Department of Justice (DoJ), which it hopes will result in the US taking no further action against the group after the industry was in effect banned in the US in 2006.

Mr McIver says that a settlement should be reached by the end of the year. The problem for investors is that Sportingbet cannot pay a dividend until the dispute is over. "The shares continue to grow and allow investors access to the buoyant online sports betting market," argues Mr McIver. True, but punters could always buy William Hill and secure a dividend instead.

If the DoJ settlement comes down in Sportingbet's favour, the shares will spike and investors that buy now will be in clover: the dividend will start to flow, promises Mr McIver.

We think Sportingbet is worth a speculative bet, but investors should be aware that it could go horribly wrong. Speculative buy.

Alterian

Our view: Buy

Share price: 105p (+5p)

While it might be true that marketing budgets are being cut left, right and centre as the recession continues, we rather like the marketing software group Alterian. More importantly, so does the market, with the stock up 5 per cent yesterday, after a rise of 87 per cent in the last quarter alone.

The company says that marketing departments are increasingly turning to its software as its success is measurable. Clearly there is more than a hint of truth in the suggestion, with the group managing to record an annual pre-tax profit gain of 48 per cent yesterday. The key, says its chief executive, David Eldridge, is that Alterian benefits from strong recurring revenues, with 60 per cent of last year's earnings to be repeated in the 2009 numbers.

The savvy punter may think he has missed the boat and that surely the gains of the last three months will not be repeated over the summer. We would tend to agree, while the analysts are split on the relative value of the stock. We would also be happier if the group was willing to share the spoils with shareholders.

Although we think the charge of the stock will slow, we reckon the shares will tick up in value, which alone should persuade the undecided. Buy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...