Market Report: Water firms bubble on Ofwat deal hope

The rain poured down on the City yesterday, but water shares were on the up amid hopes that utility firms will come to a more profitable agreement with the industry regulator over new licence proposals.

Ofwat had said it wanted to break the link between prices and inflation, and warned that firms which disagreed faced being referred to the Competition Commission. But after the market closed on Tuesday night, the regulator took on what JP Morgan analysts called a "softened" view.

Ofwat said: "The challenges facing the sector means there is a need for new, innovative ways to deliver sustainable water. Flexibility is needed in the licence since it is one of the key tools of regulation so that we, as regulator, can adapt to changing circumstances."

The buzzword "flexibility" was seized on by investors and analysts.

"The softening of Ofwat's stance on a Competition Commission referral reduces the near-term risk of negative newsflow," said the suits at JP Morgan. This "should help reassure the market that UK water regulation remains sensible and proportionate".

RBS Capital Markets' John Musk agreed, and said Ofwat's statement "suggests there may be a middle ground here".

The water firms bubbled up in response. United Utilities gained 12.5p to 673.9p, and Severn Trent put on 22p to 1570.9p. But Pennon, which owns South West Water, was left behind, half a penny cheaper at 608.5p.

Elsewhere, the most surprising news in the Footsie was that it takes more than a coach trip to a warehouse in Enfield to get retail analysts excited. On Tuesday, Tesco packed 80 analysts and investors off to visit its north London dot.com "dark" store, where no shopper treads but goods are packed for online orders.

The supermarket did its best to entice the suits: "Lots of delicious samples," said Seymour Pierce's Kate Calvert; the day was "all washed down with dinner, consisting entirely of Tesco products", Philip Dorgan at Panmure Gordon added.

But the trip itself was received more mutedly. "Getting back on track, but that's all," said Caroline Gulliver at Espirito Santo, with a neutral stance. "Catch-up investments need to be made."

With a sell recommendation, Ms Calvert added: "It is far too early to call the turn, but we were encouraged by the fact that management seemed to be making the right noises."

Tesco's shares fell 1.25p to 317.8p.

Meanwhile, the continued failure of talks to sort out a bailout for Greece was a drag on the Footsie. Nearly 12 hours of talks through the night weren't enough for eurozone ministers, the International Monetary Fund and the European Central Bank to work out a deal. They'll have another go next week, they promised – leaving the Footsie just 3.93 points higher at 5,748.1 points.

It would have been a bit better, but Vodafone went ex-dividend, accounting for 6.9 points of the fall. More was taken out by the mining group Vedanta and supermarket chain Sainsbury also going off dividend.

Still, City types weren't happy. "Mary Magdalene would be comfortable here – it's sepulchral," said the Cantor Index veteran David Buik. "Volumes are desultory, New York is closed for a four-day break, nothing is happening on Greece – it gives investors every chance to do nothing."

The FTSE 100 platinum and chemicals group Johnson Matthey did it best to take the benchmark index lower. The world's biggest catalytic converter supplier warned that lower truck sales would make for a tough second half. The first wasn't stellar: pre-tax profit for Johnson's first six months fell 6 per cent to £191.2m. Shares dropped almost 6 per cent, or 135p, to 2,179.6p.

Elsewhere, the market digested yesterday's news of Xstrata's shareholders backing its proposed £56bn merger with Glencore. The deal was expected, but the resignation of Xstrata's chairman, Sir John Bond, half an hour afterwards wasn't. He quit after investors rejected the £140m of retention bonuses he had sought to tie into the deal. Investors said good riddance: Xstrata shares put on 10.4p to 999.1p.

Darty, the electrical retailer, sold its loss-making Italian operations yesterday, the first major move by its new chairman, former Whitbread boss Alan Parker. Shares put on 5.8p to 49.75p.

Rival landlords Land Securities and British Land were high risers after Morgan Stanley upgraded its ratings on the stocks to "overweight". Land Securities added 6.5p at 783p and British Land gained 9p to 524p.

Start your day with The Independent, sign up for daily news emails
  • 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 - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before