Water Companies - United Utilities, Pennon and Severn Trent and ASOS

UK and mainland European markets are back in positive territory on Tuesday, bucking a negative trend seen in parts of Asia. The FTSE 100 nudges 0.1% higher to 7,555, helped by gains in the pharmaceutical and oil sectors,” says Russ Mould, investment director at AJ Bell.

WATER COMPANIES / UNITED UTILITIES / PENNON / SEVERN TRENT

Utility companies have historically been attractive investments because of their generous dividends. That income stream is now being called into question after regulator Ofwat called on the sector to be more transparent about how directors and shareholders are rewarded versus how customers benefit from their services.

Companies like United Utilities, Pennon and Severn Trent will have to explain in their business plans how dividends, the use of debt and executive pay can be justified when looking at how they intend to deliver high levels of efficiency and service to customers.

Essentially the regulator is worried about water companies not meeting expectations and customers being short changed. High levels of gearing, dividends and executive pay have damaged trust in the sector.

In the future, these water companies will have to show that they genuinely deliver superior performance which benefits customers and not simply rewards directors and shareholders.

The latest announcement will raise existing concerns that water companies will have to scale back their dividends in the future and thus certain utility companies may become less popular for income-hungry investors.”

ASOS

Adam Crozier’s appointment as chairman of online fashion firm ASOS is an interesting move.

Crozier has many fans in the City thanks to his turnaround efforts as chief executive at free-to-air broadcaster ITV.

Although progress stalled a little in the last few years of his tenure, overall ITV’s share price increased nearly three-fold, debt was substantially reduced and the company returned lots of cash to shareholders. 

“There may be question marks over how much time Crozier will be able to devote to the role at ASOS given he already chairs Whitbread, Vue International and Stage Entertainment.

But nonetheless, the appointment of a heavyweight candidate like Crozier does mark yet another step in the transition of ASOS from an AIM upstart to a more mature, established business.

These articles are for information purposes only and are not a personal recommendation or advice.