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Bleak water industry prospects are putting off investors
UK water companies are trading close to four-year share price lows even after a mini rally since February, with the sector dogged by political and regulatory threats.
There are few reasons why this bleak performance may reverse convincingly any time soon, according to analysts at investment bank UBS.
The UK water sub-set is down between 7% and 10% year-to-date. It has fallen by nearly 20% over the past 12 months, with Pennon (PNN) the worst performer. Severn Trent (SVT) and United Utilities (UU.) complete the list of three quoted water groups.
UBS says the UK water sub-sector’s current average 12-month forward premium to EV/RAB is 8% – well below its 10-year average of 15%. EV/RAB stands for enterprise value to regulated asset base, a key sector performance metric.
Regulator Ofwat is tightening the way it works out allowable returns the water companies can make for the next five year price review period, which runs from 2019.
The threat of industry nationalisation is also dragging on investor sentiment, if a Labour government were to seize power in a general election.
This has led to investment capital drifting from the UK water sector towards European counterparts, where companies like RWE and Innogy in Germany, and France’s EDF have enjoyed much firmer share prices. (SF)