More on AWG
AWG full year results
Full year (March 2005) turnover was down 4.9% to £1.8b as AWG sold of its international businesses in the previous years with operating profits (before exceptionals and goodwill) up 1.1% to £345.5m. Excluding the contribution from the disposed businesses, turnover was down 0.4% while operating profits were up 6.4%. Growth in turnover was driven by the non-regulated infrastructure management business (Morrison) while operating profit growth was driven by the regulated water business.
Anglian Water, the regulated business generated £339.3m in operating profit, an increase of £20.4m (i.e. 6.4%) from the previous year even after including a £11.4m provision as AWG reduces staff in order to meet the regulatory efficiency targets. Turnover increased by 3.9% to £796.8m as the regulator allowed AWG to increase prices. The increase in revenue and cost cuts increased profits. Total capital expenditure over the last five years’ were 10% less than Ofwat estimated, indicating good control of costs while maintaining quality. In the final determination announced by Ofwat, Anglian will increase bills on average by 2.4% + inflation per annum over the next five years.
The infrastructure management business increased operating profits from £17.1m to 21.8m. The order book increased by 56% to £2.8bn the bulk of it (85%) relates to longterm framework contracts, hence should sustain profits.
AWG’s share trades at a prospective PE× of 15.3 (at 900p) at the higher end of the range for the sector as is the 5.6% yield. The 1.2× divided cover is low, but given that water prices are set to increase by more than inflation and that AWG plans to increase dividends in line with inflation this is not a major concern. AWG will return £75m to share holders through a share buy-back.
Random picks: Bellway | Body Shop | EMI | HBOS | Millennium & Copthorne | Misys | RBOS | Vedanta | Go-Ahead Group | Dana Petroleum