Water companies

All,

Please find our updated analysis on Southern Water here.

Our analysis of Thames Water is unchanged here.

Both, Thames Water and Southern Water have declined to challenge the regulator at the CMA. 

So far the only water name to be downgraded has been Welsh Water. Thames Water should benefit from their extraordinary position and the ever so slight cash generation the company can produce. 

Southern Water, however, is looking at much reduced economics, negative cashflows, fresh cash need and leverage rising past all conceivable metrics under this budget - even before taking into account the hedge liabilities. So sooner or later it’s set to breach every covenant and limit insight. The question is only how forward-looking the agencies decide to be in the face of overwhelming arithmetic evidence.

From recent conversations with the S&P team responsible for water utilities, we gather there will be “downgrades” - more than one. But of course, we were not given any further detail.

We remain short Southern Water - admittedly on an off-chance, but at approx. 1% spread.

Drum is rolling... tap is dripping...

Wolfgang