Shares in focus: Water stocks offer no safe harbour

Utilities are popular with nervy investors – but you can overpay for safety, says Phil Oakley.

The shares of regulated utilities, such as water companies, are often seen as safe havens by investors. Demand for water won't change much, even in a recession. So the profits and dividends of these defensive stocks are considered reliable. There's an element of truth to this, but that doesn't mean you can bank on a higher dividend year after year.

UK water companies were sold to the public 25 years ago. For the first ten years investors did well. Profits and dividends boomed and some companies were taken over. But the last 15 years have been more mixed.

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Swipe to scroll horizontally
Share price865p
Market Value£3,449m
Net debt£2,106m
EV£5,555m
Estimated RAV£3,000m
Value of SWW at 1.2x RAV£3,600m
Implied Value of Viridor£1,955m
Peak Profits 2010/2011£82.6m
EBIT/EV on peak profits4.23%
EBIT/EV on current profits1.45%
Last 12m div per share30.8p
Dividend yield3.56%
Swipe to scroll horizontally
Share price1,937p903p
Shares239.6m681.9m
Market value£4,641m£6,158m
Net debt£4,383m£5,684m
Enterp. Value (EV)£9,024m£11,842m
RAV£7,741m£9,800m
EV/RAV117%121%
Last divi/share82.2p36.6p
Dividend yield4.24%4.05%

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.