Date: Wednesday 27 Nov 2013
LONDON (ShareCast) - Tuesday’s shares price fall in Severn Trent is a bit of a surprise. Its interim results yielded no negative surprises and the company is by design quite stable financially from an investor’s point of view. Hence, it is most likely that markets are already eyeing the year of uncertainty ahead as water companies and Ofwat negotiate over the pricing regime beyond April 2015. The outcome of the regulatory review is impossible to forecast.
Nevertheless, Severn Trent’s borrowings - as a percentage of its total value - are substantially lower than those at its peers. Furthermore, its costs are under control. As well, its bad debt record, at about 2.2% of bills, is low for the industry. That first point is very important as the regulator has suggested that companies that loaded themselves up with debt may be penalised under the next regime. Then, of course, the company offers a 4.6% dividend. That dividend yield is a good enough reason to hold the shares. A benign regulatory outcome would be a bonus, The Times’s Tempus writes.
'Think local', that is the mantra of Peter Tom, the industry veteran who is now building quarrying outfit Breedon Aggregates. Much as in banking, he argues, his industry – dominated by large, overseas owned companies – do not think locally, often closing regional offices in favour of a larger hub. However, most customers operate within 25 miles of the quarries his company owns and they expect a local, reliable service. Breedon is a consolidator of such businesses, focusing on central England and in Scotland. Unfortunately, it was recently outbid by Mittal Investments for various assets that Lafarge and Tarmac were being forced to sell as part of their merger. As well, of late management’s attention has been diverted from carrying out acquisitions due to competition authorities’ perverse focus on the purchase of some Scottish businesses of Aggregate Industries.
It is hoped that this will be resolved soon. The company is seeing a wide range of fresh work, not only from the resurgent housebuilding industry. Aggregates sales are still at an historic low, but the trade bodies expect a decent pick-up next year. Progress will require further deals, but there is a strong institutional shareholder base. Tuck away for the long term, Tempus says.
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