How to meter water stocks' profit flow

Juicy dividends and low risks have made water companies popular with investors. But they're not all great investments. Phil Oakley explains how to find the best value water stocks.

Water companies' shares are popular because they pay big dividends and are seen as low risk. But these companies are far from risk-free. Regulation, in particular, has a big impact on the returns you get. So here's my guide to working out which companies offer the best value.

How regulations affect water companies

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Share price (p)6821,715757
Shares (m)682283363
Market value (A)4,6504,8592,750
Net debt (B)5,0763,9682,105
Enterprise value (C) = A+B9,7268,8274,855
RAV (D)8,7247,0892,827
Premium to RAV = C/D11.5%24.5%71.8%
Dividend per share32.070.126.5
Dividend yield4.7%4.1%3.5%
Other business post-tax profitn/a19.348.1
Value if water = RAV (C-D)n/a1,7382,028
Profit multiplen/a9042.2

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.