Northumbrian bid talk could reset sector valuations

Shares of all four listed UK water groups rose sharply this week on reports that the Ontario Teachers Pension Plan was about to launch a £1.7 billion bid for Northumbrian Water.

Lakis Athanasiou at Evolution Securities said if the bid materialised on the terms reported, it would probably re-set valuations in the sector to about 110% of regulated asset values, from around 100-105% at present. “The fact that this sort of investor considers that a price worth paying would increase perceptions of value,” he maintained.

OTPP, which already owns 26.8% of Northumbrian, would likely bid in partnership with other investors such as fellow Canadian pension fund Borealis, with whom it is a co-investor in the Scotia Gas distribution network in Scotland.

Analysts observed that OTPP might have decided to make a move now that the uncertainty of the 2010-15 pricing review is over (Northumbrian secured a better deal than most).