Flowing profits drive up United Utilities shares

Suzie Neuwirth
WATER company United Utilities was one of the few stocks to rise on the FTSE 100 yesterday, after it unveiled an eight per cent rise in pre-tax profits and a five per cent rise in revenue for the year.

The firm, the country’s biggest listed water company, announced pre-tax profits of £354m for the year ended 31 March 2013 from £327m a year ago and revenue of £1.6bn.

“Utility stocks tend to perform in line with expectations, unless the regulator changes things,” Jonathan Jackson, head of equities at Killik & Co, told City A.M. “The interesting timing for the sector at the moment is the takeover speculation following the recent bid for Severn Trent.”

Earlier in the month, water company Severn Trent rejected a takeover approach from a consortium of investors on the grounds that it failed to recognise the firm’s value.

“The water sector remains key for infrastructure investment, and interest in the sector from infrastructure funds and private equity firms remains, given the attractive characteristics of water companies, such as inflation-protected returns, long-term asset-backed businesses and the higher levels of gearing that these factors allow,” said Jackson.

However, the timing of the Severn Trent bid was met with surprise due to the upcoming price review from regulator Ofwat.

“The timing implies that potential acquirers are less worried about Ofwat’s pricing methodology than previously anticipated, and it is likely that speculation regarding all three listed companies within the sector will remain,” Jackson added.

United Utilities’ shares rose 0.77 per cent to close at 787.5p yesterday.