The Investment Column: Anglian waits on regulator

LIKE all utilities, Anglian Water is on a regulatory treadmill. No sooner has one review been completed and digested by the markets than the next one looms into view. With water companies the problem this time round is all the worse because Ian Byatt, the water watchdog, has decided to start the review process early. So investors are now already trying to guess what decisions he will take about a new pricing structure that will not be introduced until 2000.

This is all a bit harsh on Anglian Water, which has generally shown that it can combine a good level of service - its leakage rates are the lowest in the country - with a decent return to shareholders. Yesterday it reported a 4 per cent increase in pre-tax profits and hiked the dividend by 13 per cent. Even though the market responded positively - the shares edged up half a penny to 865.5p in a falling market - most analysts agree it will be hard to form a clear idea of the stock's future potential until Mr Byatt gives a clearer idea of his intentions.

The big question is whether the regulator will favour the consumer lobby, which wants lower prices, or the environmental lobby, which wants more cash for investment. There is even an outside chance he will try to please both, leaving shareholders squeezed in the middle.

Given the sensitivity of the issue, it's not surprising that Anglian was giving little away about the scope for future cost-cutting. Plans to return 8 per cent of its capital - about pounds 180m at the current price - to shareholders is also restrained given that it will take Anglian's gearing to just 80 per cent, from 73 per cent at the moment.

With a dividend yield of 4.5 per cent, Anglian shares should be attractive for any investor looking for income and a defensive position against a possible market downturn. In share price terms, however, they will just mark time until the regulator shows his han