Sector spotlight: Gas, water and multiutilities

In this weeks’ sector spotlight, I ask whether there are opportunities for investors in gas and water and multi utilities.

Article updated: 28 August 2020 10:00am Author: Michael Baxter

We will always need energy, and we will always need water. Gas: well, climate change creates the imperative for alternatives, although I don’t see the gas sector being disrupted out of business any time soon.

The gas and water and multi-utility sector are usually seen as a mature industry, with limited scope for growth, but which pays good dividends. Well, that view is not entirely correct. There are some high growth businesses in the sector, although many of these have market caps of less than £50 million, which I am not looking at here. It is not that such companies are not necessarily suitable investments, I just think investing in small caps is a specialist area and only for private investors if they happen to know the companies in question quite well.

Of the companies in this sector, The Share Centre holds an opinion on four. It describes National Grid and United Utilities as ‘buy’ and Pennon and Severn Trent as ‘hold’.

Four of the companies pay out dividends yielding more than 4%, and they are the four described in the previous paragraph.

One other company is this sector pays out dividends over 3%, and that is Centrica.

I think a company’s balance is a good yardstick for ascertaining how secure a company’s dividends are. Centrica’s balance sheet looks quite weak to me, with current assets worth less than current liabilities. National Grid also sees current assets worth less than current liabilities, but at least its total assets are worth a lot more than total liabilities. And at least, unlike Centrica, it made a profit last time it revealed its annual results.

Pennon has a strong balance sheet and profits growth over the last five years has been good.

The Severn Trent balance sheet is not so healthy either — not when you compare assets to liabilities, but United Utilities has got a stronger balance sheet.

Of the companies in this sector, four saw their share price rise to a five year high in 2020 — Pennon, Powerhouse Energy, Severn Trent and United Utilities.

For share price performance, Pennon is the winner over five years — with shares up 32%. It is also the winner when looking at long-term performance, with shares up 952% since it joined the stock market in 1989.

Here is a more detailed look at the companies in this sector.

Centrica

Share price 45.54p
2020 high 93.5p
2020 low 30p
Five year high (2016) 240p
All time high (2013) 396p
Change last 12 months -32%
Change last five years -81%
Change since 1995 -49%
Market cap £m 2,659
Yield % 3.29
P/E -3
Revenue growth since 2015 -9842.7%
Pre-tax profits growth since 2015 -2.8%
Total assets/total liabilities 1.1%
Current assets/total liabilities 0.5%
Current assets/current liabilities 0.9%
net assets £m  1795.0

Inspired Energy

Share price 15.5p
2020 high 20.44p
2020 low 9p
Five year high (2017) 24p
All time high (2017) 24p
Change last 12 months -77%
Change last five years -94%
Change since 1995 -83%
Market cap £m 149
Yield % 1.42
P/E 28
Revenue growth since 2015 8870.9%
Pre-tax profits growth since 2015 60.0%
Total assets/total liabilities 1.8%
Current assets/total liabilities 0.6%
Current assets/current liabilities 1.8%
net assets £m  50.0

National Grid

Share price 887.6p
2020 high 1067p
2020 low 800p
Five year high (2016) 1211p
All time high (2016) 1211p
Change last 12 months 4%
Change last five years -5%
Change since 1995 244%
Market cap £m 31,245
Yield % 5.47
P/E 24
Revenue growth since 2015 -330.2%
Pre-tax profits growth since 2015 -19.7%
Total assets/total liabilities 1.4%
Current assets/total liabilities 0.1%
Current assets/current liabilities 0.7%
net assets £m  19584.0

Powerhouse Energy

Share price 3.25p
2020 high 4.4p
2020 low 0.51p
Five year high (2020) 4.4p
All time high (2000) 765p
Change last 12 months 0%
Change last five years 1%
Change since 2000 -99%
Market cap £m 114
P/E -41
Revenue growth since 2015 0.0%
Pre-tax profits growth since 2015 -631.3%
Total assets/total liabilities 1.0%
Current assets/total liabilities 0.9%
Current assets/current liabilities 0.9%
net assets £m  -0.01

Pennon

Share price 1020p
2020 high 1202p
2020 low 967p
Five year high (2020) 202p
All time high (2020) 1202p
Change last 12 months 40%
Change last five years 32%
Change since 1989 952%
Market cap £m 4,298
Yield % 4.29
P/E 21
Revenue growth since 2015 274.2%
Pre-tax profits growth since 2015 43.1%
Total assets/total liabilities 1.3%
Current assets/total liabilities 0.2%
Current assets/current liabilities  4.7%
net assets £m  1712.0

Severn Trent

Share price 2433p
2020 high 2696p
2020 low 2034p
Five year high (2020) 2696p
All time high (2020) 2696p
Change last 12 months 19%
Change last five years 17%
Change since 1995 296%
Market cap £m 5,809
Yield % 4.11
P/E 36
Revenue growth since 2015 514.5%
Pre-tax profits growth since 2015 2.6%
Total assets/total liabilities 1.1%
Current assets/total liabilities 0.1%
Current assets/current liabilities 0.6%
net assets £m  1243.0

United Utilities

Share price 856p
2020 high 1061p
2020 low 763p
Five year high (2020) 1061p
All time high (2020) 1061p
Change last 12 months 8%
Change last five years 0%
Change since 1995 108%
Market cap £m 5,838
Yield % 4.98
P/E 54
Revenue growth since 2015 912.2%
Pre-tax profits growth since 2015 -31.4%
Total assets/total liabilities 1.3%
Current assets/total liabilities 0.1%
Current assets/current liabilities 0.7%
net assets £m  2962.0

All prices are approximate figures taken from 25 August 2020.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

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Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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