The takeover wave sweeping the water sector shows little sign of receding, and Northumbrian Water Group (NWG) is seen as a likely target. That's because the Ontario Teachers Pension Plan, which has a track record of investing in UK infrastructure assets, owns 25 per cent of NWG's shares. What's more, although NWG finance director Chris Green says that Ontario Teachers is a long-term investor - with an investment horizon of maybe 30 years - rumours persist that the Canadian pension fund could team up with another player to mount a full takeover, or possibly sell its stake to another bidder.
Meanwhile, as the City continues to speculate on NWG's future, the group has got on with running its regulated Northumbrian Water business. And this business performed solidly in the first half, with a rise in water and sewerage charges driving a 5.9 per cent increase in revenue in the period to £293m. So, despite higher energy costs, NWG's operating profits rose from £115.5m to £124.2m. The group's half-dividend rise was also in line with a commitment to increase dividends by 3 per cent ahead of inflation until 2010.
House broker Deutsche Bank now expects full-year adjusted EPS of 21.08p in 2007 (from 19.6p in 2006).
Ord price: 309p Market value: £1.60bn
Touch: 309-310p 12-month High: 330p Low: 224p
Dividend yield: 3.5% PE ratio: 16
Net asset value: 61p* Net debt: 644%
*Includes intangible assets of £67.9m, or 13p a share
Half-year Turnover Pre-tax Earnings per Dividend per
to 30 Sep (£m) profit (£m) share (p) share (p)
Last IC view: Good value, 296p, 27 Oct 2006
Ex-div: 20 Dec
Payment: 2 Feb
Valuations across the water sector are frothy, but NWG's premium to its regulatory asset base is among the lowest, so it looks like one of the safer bets - as well as being a takeover target. Good value.
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