Water torture as investors hang on Northumbrian bid

The sector is unlikely to provide an electricity-style bonanza, say cautious analysts

INVESTORS pouring into Britain's privatised water sector are eagerly awaiting the Government's decision on a proposed bid by Lyonnaise des Eaux for Northumbrian Water.

Its reaction to the pending bid - for an undisclosed amount - is seen by analysts as the clearest signpost to whether the sector will reward speculators the way the electricity industry has.

Water shares rocketed last week on hopes that the industry would attract a wave of bids. The FT-SE index for water companies rose 69 points on the week to 2,148, led by Southern Water (up 33p to 717p), Yorkshire (up 32p to 657p) and Anglian (up 27p to 596p).

Lazard Brothers, the merchant bank advising Northumbrian, believes Ian Lang, the President of the Board of Trade, could make his ruling on the principle of the Northumbrian takeover before the Conservative conference begins on Tuesday.

Ian Byatt, the industry regulator, has suggested that the reduction of competition should be offset, if the deal goes through, by a 15 to 20 per cent price cut for customers, forcing Northumbrian's future owners to implement cost savings that he would use as a benchmark for other companies. Such a cut could reduce the amount offered to shareholders by up to 80p.

Despite the uncertainty, investors have been flooding into the market. Shares in the sector have out-performed the FT-SE All-Share Index since March. Most of the new players are institutional shareholders who have sold some pounds 11bn in regional electricity company shares to the predators stalking that sector but want to maintain a presence in utilities to keep their portfolios balanced. Others are speculators gambling that water shares will boom the way electricity stocks have.

Most analysts feel the sector will not take off. Unlike electricity, where several large US companies have bid or are waiting in the wings, the international water sector consists of small, fragmented companies, often municipally owned. Only the three French giants are obvious bidders.

Water companies are not cash generative. Heavy capital expenditure is needed to bring services up to European standards of pollution control. This summer's drought brought pressure to bear for them to invest in reducing leaks from their pipelines.

Add the threat of enforced price cuts and the possibility of a future Labour government imposing a windfall tax and the sector looks even less attractive.

But some observers reckon the sector is under-priced by about 10 per cent. The most bullish City analyst, Robert Miller-Bakewell, of NatWest Securities, has predicted that the 10 listed water companies will be reduced to seven by 1997, with one being taken over by a French company, a second merging with an REC, and a third going to a conglomerate. If North West Water is successful in its contested bid for Norweb, and Lyonnaise with Northumbrian, only one more deal would be needed to fulfil his prediction.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Gabriel Agbonlahor, Alexis Sanchez, Alan Pardew and Graziano Pelle
footballAfter QPR draw, follow Villa vs Arsenal, Newcastle vs Hull and Swansea vs Southampton
New Articles
i100... she's just started school
ebooksAn unforgettable anthology of contemporary reportage
New Articles
Life and Style
Couples have been having sex less in 2014, according to a new survey
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
New Articles
i100... despite rising prices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
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

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam