The Investment Column : Wessex keeps profits flowing

Wessex Water may be the last of the privatised water companies to report its figures but it is by no means the least interesting. Like most of the utilities sector, it is embroiled in merger activity which could see the company cast as either predator or prey.

In March, Wessex made an offer for its neighbour South West Water. Severn Trent also threw its hat into the ring. Both bids are being scrutinised by the Monopolies and Mergers Commission, which is not due to report until September. If approved, South West could be the subject of a pounds 900m bid battle.

Wessex management was due to meet MMC officials for the first time yesterday and the company promised shareholders that it would not over-pay. (Severn Trent said the same thing last week.)

Wessex's problem is that although it is well run and has an enviable record, its relatively small size makes it vulnerable. Swallowing the accident-prone South West may act as a poison pill. It would also make it a much larger morsel for a bigger rival to digest.

All this places shareholders in a good position. If Wessex does win South West, it ought to be able to wring out a better performance from the company. If it fails, there is always the prospect of Wessex becoming a bid target.

Yesterday's figures confirmed the good run of a company that has never issued a hosepipe ban and never made any exceptional charges in its core business. Pre-tax profits in the year to March were 14 per cent higher at pounds 134m.

Costs have been shaved by another 4 per cent. Management is promising a similar cut this year. The waste business, which has conducted 42 acquisitions since 1991, improved profits by 20 per cent to pounds 12m and should benefit from the landfill tax. The only negative here was the second-half drop in recycling profits.

With pounds 62m of net cash Wessex says it can easily gear up for a South West Water bid. If it fails it is likely to return some money to shareholders or acquire more waste management groups. Eight were acquired in the last financial year.

Analysts are forecasting profits of pounds 144m and the shares, 7p higher yesterday, trade on a forward rating of 8. Hold.

Start your day with The Independent, sign up for daily news emails
A recent rise in net migration has been considered bad news for the Government
voicesYet when we talk about it, the national media goes into a frenzy, says Nigel Farage
Life and Style
Miracle muffin: chemicals can keep a muffin looking good at least a month after it was bought
food + drinkThe alarming truth behind the chocolate muffin that won't decay
Arts and Entertainment
Jonny Evans and Papiss Cisse come together
Approved Food sell products past their sell-by dates at discounted prices
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star