M&A mutterings boost United Utilities share price

Fresh takeover talk has bolstered the market value of United Utilities (UU), with shares climbing almost 6 per cent in less than two weeks.

The UU share price took a heavy hit over recent weeks as the water company battled against a cryptosporidium outbreak which is estimated to have cost the company around £20 million, and caused a multi-million pound maintenance project to be postponed by a year just two weeks before work was due to start.

Although the share price has pared losses over the past weeks, rising from 828 pence at the start of the month to 876 pence on Wednesday morning, brokers and investment analysts have reignited M&A speculation on the basis that the company’s stock is still a bargain compared to others in the sector.

Analysts at Societe Generale said in a note earlier this week that the company’s market value debt is at a 14 per cent premium to March compared to 16 per cent for Pennon and 29 per cent for Severn Trent.

Research analysts at brokerage Bernstein said the current valuation of the company therefore offers “an attractive acquisition target for a pension or infrastructure fund”.

“This divergence provides a meaningful opportunity for UU to be taken out by an infrastructure, pension or sovereign wealth fund consortium,” said Bernstein senior research analyst Deepa Venkateswaran.

UU lifted the boil notice which has plagued the company for over a month over the weekend, adding further buoyancy to the share price. However, the value still stands 11 per cent lower than highs of just over 990 pence seen in late June.

Earlier this month the Competition and Markets Authority (CMA) set out its plans for a streamlined process which could see water mergers approved within 40 days.