The Investment Column: South West's waste line

SOUTH WEST WATER has been greedily buying up landfill sites for waste management. In the last three months its Haul Waste division has taken on 12 million cubic metres of new ground, representing a 15 per cent increase on its overall capacity.

This might seem a dirty business but South West management believes "green" means gold. It argues that its in-depth expertise in waste management means it is best placed to deal with an increasingly sensitive environmental issue.

The company is about to change its name to the Pennon group. Critics see this as an attempt to escape from a past associated with high water charges and dirty south coast beaches.

But the company believes Pennon represents a move away from the boring utility image as it reaches into sectors away from the grabbing hands of the regulator.

Waste management is one of three new "non-regulated" areas where the group is keen to expand. The others are specialist environmental instrumentation and specialist contracting.

Some early excursions have not been a great success. The sale of its 50 per cent holding in Societa Italo Britannica dell'Acqua cost South West pounds 7.5. That, coupled with a provision for the restructuring of its water and sewerage business dented pre-tax profits unveiled yesterday.

Before exceptionals, profits rose 3 per cent to pounds 121.6m while turnover was up 11 per cent to pounds 382.1m.

For the shares, up 4p to 960p, the big issue remains how the company will be hit by the Ofwat periodic review of water charges which impacts in April 2000. Analysts expect profits of pounds 128m next year implying a forward multiple of 11 times. That is slightly above the sector average. Hold.