Southwest heads in the right direction
- From: Vol 10, Issue 2 (February 2009)
- Category: General
- Country: China, France, United Kingdom and United States
- Related Companies: Agbar, American States Water, American Water, Asia Water Technology, Basin Water, Beijing Capital Group, Bio-Treat Technology, Copasa, Darco, Energy Recovery Inc, ePure International, Insituform, ITT, Keppel Corp, Kurita Water Industries, Millipore, Nalco, Pennichuck Water, Pennon, Qianjiang Water Resources, Sabesp, Severn Trent, Sinomem Technology, Southwest Water, Suez, Thai Tap Water Supply, Tianjin Capital Environmental Co, United Utilities and Veolia Environnement (formerly Vivendi Environnement)
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The resolution of a long-running legal dispute sent Southwest Water’s share price soaring this month. The sudden departure of Veolia’s CFO, meanwhile, ups the ante ahead of the company’s results announcement on 6th March.
The GWI Global Water Index dipped by 2.75% in the month to 10th February, but still succeeded in outperforming all the major stock indices. China came out on top, as all three Chinese stocks tracked by GWI rose by between 20% and 40% (see Best Performers, opposite), as details of the government’s RMB4 trillion stimulus package gradually became clearer (see story p26).
Regulated US water utilities continue to offer a safe haven for investors, with Southwest Water proving to be the star performer this month. The company’s shares have been in the doldrums since SWWC announced last autumn that it would restate its results, but jumped on the news that it had reached a settlement in the long-running legal dispute with the Albuquerque Bernalillo County Water Utility Authority in New Mexico.
Under the agreement, Southwest will receive gross proceeds of $60 million – more than book value – for the assets of its subsidiary New Mexico Utilities Inc. The proceeds will be used to pay down a portion of Southwest’s outstanding debt.
The market appreciated the first positive news from the company for several months, and the shares ended the period up by 45%.
Another company restating its results is Basin Water, and although the stock rose by 18.5% in the period under review, the restatement – released on 11 February – sent the shares south again, as Basin Water revealed that the restated results had increased its losses for 2006, 2007 and the first quarter of 2008 by a total of $5.4 million.
Fears over share dilution took their toll on pipefitter Insituform this month (see Worst Performers, right), after the company priced a $117 million equity offering to partfund two ambitious acquisitions. The company is broadening its pipeline protection offering by acquiring oil and gas pipeline specialist Bayou and pipeline maintenance company Corrpro for an aggregate sum of $216 million. Insituform will also take on new debt in connection with the deal.
European water stocks sank by 6% this month, and the regulated UK utilities all declined after delivering gloomy news in their latest trading statements (see story p14). Most are predicting that their revenues will be hit by reduced water consumption and increasing bad debts – both symptoms of the recession.
Suez Environnement, meanwhile, shook off the gloom by reassuring investors that all is well. The company’s 2008 revenues and EBITDA were both in line with expectations when the results were announced on 29 January, and the shares were duly bolstered by the news. The conpany is due to release its profit figures on 3rd March.
Veolia, meanwhile, does not report its 2008 revenues until after Suez’s profit figures are out. The big news for Veolia this month – and the event which had the biggest negative impact on the share price – was the departure of Jérôme Contamine, the company’s chief financial officer for the past eight and a half years, and Henri Proglio’s right-hand man. In a brutally brief statement, the company communicated the fact that Contamine had left, and named his replacement – Thomas Piquemal, who was most recently with investment bank Lazard Frères. It certainly raises the stakes in terms of what to expect when Veolia announces its 2008 results on 6th March.