SHAREHOLDERS IN United Utilities, the North-west England water and electricity goliath, have until next Wednesday to mull over the group’s unexpected and complicated pounds 1bn rights issue, anddecide whether to fork out for the first tranche of new shares. They should decide to take up the rights.<\/p>\n
Shareholders are being asked to subscribe initially for five “A” shares for every nine ordinary shares they own. The “A” shares will cost 165p apiece and be worth half an ordinary share – that is, half last night’s close price of 470p. “A” shares will be entitled to half the dividend and give holders the right to subscribe to the other half of the issue in 2005, also at 165p.<\/p>\n
Their stock has tumbled in value since the rights issue was announced because there will be significant earnings dilution when the new shares are issued. The value of the “A” shares, then, will fluctuate in accordance with the main UU price, only more violently. Given the UU price has been temporarily depressed by hedge fund activity, the chances are it will snap back sharply after the rights issue proceeds come in and “A” shareholders will be able to cash in on a tidy sum.<\/p>\n
Longer term, the picture is cloudy and investors will need to be canny in choosing a moment to take profits. The “A” shares have a stonking 12 per cent-plus yield, which no doubt argues in favour of keeping them for as long as possible, but uncertainty over the future will grow next year.<\/p>\n
It is far from clear that the cash-call will alleviate the need for a dividend cut when the next five-year price regime is agreed with the regulator. On most analysts’ calculations, debt levels are likely to stay too high unless Ofwat is hugely generous. With the stock market moving back into growth mode, UU is likely to prove an unattractive investment as the price review gets into full swing.<\/p>\n
But there is a good chance the company will be allowed a one-off rise in water bills next year because of the costs of infrastructure investment it has made in recent years. This could support the shares, “A” and ordinary, in the short term and make taking up the rights a good bet.<\/p>\n","protected":false},"excerpt":{"rendered":"
SHAREHOLDERS IN United Utilities, the North-west England water and electricity goliath, have until next Wednesday to mull over the group’s unexpected and complicated pounds 1bn rights issue, anddecide whether to fork out for the first tranche of new shares. They […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1057","post","type-post","status-publish","format-standard","hentry","category-hedgeco-news"],"_links":{"self":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/1057","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=1057"}],"version-history":[{"count":0,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/1057\/revisions"}],"wp:attachment":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=1057"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=1057"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=1057"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}