More on AWG
AWG: 2005/6 results
AWG reported a 30% growth in operating profits for the year to March 2006 (£377.9m against £288.8m last year) mainly due to higher prices and increased demand.
AWG runs Anglian Water (which serves 6m customers in the east of England and Hartlepool) and support services group Morrison. Anglian Water is (by far) the company’s most important business, contributing just over 95% of operating profits for the current year. Morrison provides a range of infrastructure-related support services.
Turnover at Anglian Water rose due to regulatory prices increases as well as increased seasonal demand for water. Higher turnover and an efficiency improvement programme which focused on cutting staff and reducing water leakages amongst other things contributed to the increase in operating profits. Overall, operating expenditure decreased from 39.2% to 37.8% of turnover as a result of the efficiency improvement programme.
The company needs to generate a minimum amount of operational savings as part of the regulatory pricing formula currently applicable. The company is confident of meeting the required level of efficiency improvements.
Within the smaller Morrisons business, the company has disposed of the Construction Services and Project Investments at a book loss of £56.4m. The loss on disposal arises mainly on account of a goodwill write off of £93.1m. The loss has been classified within discontinued operations. The company says the construction Services business had the highest inherent risk profile and lowest margins amongst the Morrison’s businesses.
The Morrison order book at the year-end was some £1.42bn (£1.18bn the half year).
Given the favourable regulatory pricing structure in place and the improvements in efficiency, prospects look good. The disposal of the Morrisons construction business should contribute towards a lowering of the company’s risk profile.
The share trades at 1114p, on a prospective PE (2007 earnings) of 15.7x, significantly lower than when we last looked at it, and within the sector range. The yield is 4.8%.
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