Investment Column: United Utilities is a safe share to hold

Paypoint; Hogg Robinson


Our view: Hold

Share price: 538.5p (-4.5p)

Inflation is viewed as particularly nasty by most capitalists and should, they say, be avoided at all costs – even if that means unemployment increases.

Not so those at the regulated water companies, since their customers are charged according to the retail price index. With prices expected to rise in the coming 12 months or so, investors in companies such as United Utilities can expect better revenues. Add to this the defensive nature of the sector (we do all have to drink, after all) and it is difficult to dismiss groups such as United Utilities out of hand.

The elephant in the room as far as the industry is concerned is that all suppliers are waiting for the water industry regulator Ofwat to sign off on business plans submitted for running their patches between 2010 and 2015, including proposed price increases. There is no guarantee that Ofwat will agree to United Utilities' plan, even if it would be considered a surprise if a deal is not ultimately done.

With predictable returns – the company posted decent full-year results yesterday, the highlight of which was a better than expected debt position – companies such as United will provide a bit of backbone to any portfolio.

However, while we think United is a safe punt, we would not be buyers, thinking that there are better bets available. The experts at Cazenove argue: "United Utilities is one of the worst-performing European utilities year to date ... [and] on our calculations it is the most expensive water company on regulated asset value-based multiples, trading on a 7 per cent premium to March 2010 regulated asset value versus the sector average of around 2 per cent."

Those of you who reckon we are beyond the worst of the downturn should chase higher-growth stocks. We are not convinced the economy is set to improve soon and would not sell such a safe stock. There are better names in the sector, however. Hold.

Paypoint

Our view: Buy

Share price: 462p (+7p)

The very fact that the electronic payments group Paypoint has increased its dividend (yes, that's right, do not adjust your newspaper, increased) probably makes it worth buying without any further investigation needed.

Those opting to have a further look can only be encouraged. Yesterday, the company posted a 19 per cent increase in like-for-like profits and boasted that in most areas, its growth was continuing apace. Paypoint reckons it can increase its market share in the electronic bill payments market and that, with moves into areas such as parcel delivery and the further expansion of its Romanian business, the future looks rosy.

However, there are those who disagree. Watchers at Numis said last night: "We do not regard PayPoint as a high organic growth company... we do not think the company is recession-proof, we think mobile top-up commission levels are likely to come under further pressure and ultimately we regard cash transactions as being in long-term structural decline." Others agree.

Paypoint's chief executive, Dominic Taylor, says this is all tosh. Yes, he concedes, mobile top-up is slowing, but there are plenty of other parts of the business that continue to grow. For the time being at least, we would agree with him. Buy.

Hogg Robinson

Our view: Buy

Share price: 23p (-0.25p)

David Radcliffe, the chief executive of the business travel group Hogg Robinson, refuses to say that trading is grim. However, while admitting that we are in the most challenging trading conditions ever seen, he claims the company is doing well on all fronts, with revenues up and debts down, as customers ask Hogg Robinson to investigate ways of saving money on travel expenses. Investors should not confuse the group as being reliant on the number of business people travelling, he stresses.

Mr Radcliffe is right that the group is more resilient after cutting its costs over the past 12 months and, while it may sound like bluster and spin, Hogg does have the flexibility to adjust costs further should it need to.

We do think it is a bit cute, however, to say that Hogg does not face any specific risks, despite what the company describes as fragile macro conditions. Profits were down 9 per cent, which the boss argued was pretty good, and the dividend has been "rebased" – meaning, of course, that it has been cut.

Nonetheless, we like Hogg Robinson and see that it has reacted decisively to the downturn. It helps that the yield remains good despite the cut dividend. The shares do not trade at a demanding level, and any recovery in the markets will lead to a better price. Hogg Robinson is high risk, but we think it is worth a punt. Buy.

Start your day with The Independent, sign up for daily news emails
New Articles
tvDownton Abbey Christmas special
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
News
news
PROMOTED VIDEO
News
i100
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
art
News
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Arts and Entertainment
tv
Life and Style
fashion
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all