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
News
A poster by Durham Constabulary
news
Arts and Entertainment
books New York Times slammed over summer reading list
Sport
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
music
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine