Water torture as investors hang on Northumbrian bid
The sector is unlikely to provide an electricity-style bonanza, say cautious analysts
Sunday 08 October 1995
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.
- 1 2015 General Election: Green party will not appear in TV debate alongside Ukip – says BBC
- 2 Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
- 3 Of course, teenage girls need role models – but not like beauty vlogger Zoella
- 4 North Korean officials 'publicly executed for watching South Korean soap operas'
- 5 Muslims, immigration and teenage pregnancy: British people are ignorant about almost everything
'Nasa Confirms Six Days of Darkness in December': No, they don't - it's a hoax
Canadian actor punched in face after 'Islamophobia' experiment goes wrong in wake of Ottawa shooting
Elizabeth Norment dead: House of Cards actress honoured by Kevin Spacey after she dies aged 61
Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
North Korean officials 'publicly executed for watching South Korean soap operas'
Pope Francis declares evolution and Big Bang theory are real and God is not 'a magician with a magic wand'
Huge surge in Ukip support after EU funding row, according to new poll
Ukip ‘exploiting grooming scandal’ to secure party’s first police chief
Nigel Farage: 'There’s nothing wrong with white people blacking up'
Muslims, immigration and teenage pregnancy: British people are ignorant about almost everything
Nigel Farage and Frankie Boyle clash over Andrew Lawrence's 'Mock the Week' criticism
iJobs Money & Business
£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...
£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...
£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...