Analysts Foresee Growth in Private Water Utilities

By Nzong Xiong N. Y. Times News Service | THE JOURNAL RECORD, August 27, 1997 | Go to article overview

Analysts Foresee Growth in Private Water Utilities


Nzong Xiong N. Y. Times News Service, THE JOURNAL RECORD


Water is a necessity of life, and the thirst for clear, clean water is not drying up anytime soon, though municipal financing well might. Consequently, Wall Street analysts see a potential for growth in the private utility companies that are steadily absorbing a bigger share of the water market by taking on the management of public water systems.

"It's really the buzz of the water utility sector over the last year," said Gregg Orrill, research analyst at HSBC Securities in Washington. That goes beyond the water industry's traditional attractions to many Wall Street analysts, its high dividends and stability.

To be sure, in a $30 billion national water industry, the private utility vendors' share was just $4.2 billion last year. The largest of the publicly traded water companies is American Water Works, which serves more than 7 million people in 21 states. Next in line is United Water Resources, which serves 2.5 million people in 13 states. Conservative investors who are looking for income will find that United Water, which closed Monday at $17.25, has a yield of just under 5 percent, while American Water, which closed Monday at $21.9375, offers a dividend of 3.5 percent. By contrast, the yield on the Standard & Poor's 500 index is less than 1.7 percent. "Older investors who would look at bonds would also look at water," said Ronald Tanner, managing director of research at Legg Mason Wood Walker in Baltimore. "It's stable because people have to use water." But some industry experts, thanks to recent regulatory changes, see more -- a potential for growth. Earlier this year, Treasury Secretary Robert E. Rubin announced tax-rule changes that make it easier for local governments to enter into long-term contracts -- up to 20 years -- with private companies to manage operations that were financed with tax-exempt bonds. And the 1996 amendments to the Federal Safe Drinking Water Act included a provision that allowed states to make grants of up to $75 million to local water systems -- both publicly and privately owned. Until lately, privatization has been slow, perhaps because providing safe, clean water is still considered a basic task of local government. But a 1997 U.S. Environmental Protection Agency survey estimated that at least $138. …

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