Severn Trent is among the day's major risers after an upbeat trading statement.
The water utility said it expected to meet its previous expectations and guidance, given there had been no material change since its interim management statement at the end of January. It was on track for £30m of cost savings in the next two years, and forecast a decline in consumption which would hit full year revenues by £20m to £25m.
S&P equity research has raised its recommendation from hold to buy on the company - whose shares have climbed by 46p to £10.71. Evolution Securities was also upbeat on the business, commenting:
"The next [industry] review will reset revenue and operating expense levels, with revenue risk going forward reduced as revenue variability will be a pass through item. Companies with high capital expenditure will see downward pressure on dividends, with ability to increase gearing constrained by deflationary pressure. Because of this, the Severn Trent dividend may come under pressure post 2010. However we should obtain greater clarity of the company's capital expenditure plans with publication of the final business plan on 7 April, and we expect Severn Trent will show significant capital expenditure reductions from the draft business plan levels. There is negative impact on valuation from deflation and regulatory risk stemming from the upcoming review. However this is massively overdone. The stock is 15% cheap and we remain buyers."
Pennon, which owns South West Water, also benefited, moving up 16p to 424p.
Overall the market is down but not out. The FTSE 100 has fallen 38.88 points to 3913.93 as investors pause for breath and a few profit takers move in after the market's recent recovery. One trader said:
"It looks like deflation is imminent even if today's [RPI] figures surprisingly didn't show it yet. We are likely to continue having some bad days, but long only funds do have cash, so they will probably come back in whenever the market dips."
Food companies are topping the two main indices. Northern Foods is leading the FTSE 250, up 4.25p to 43.75p after this morning's upgrade from UBS. This has also given a boost to Associated British Foods, which is up 28.5p to 653p to make it the biggest riser in the FTSE 100.
But banking giant HSBC is the biggest faller in the leading index, down 35.5p to 382.25p after Bank of China unveiled a 58% drop in fourth quarter profits. Part of the problem was at Bank of China's Hong Kong business, an area of the world where HSBC is heavily involved. Asia focused bank Standard Chartered has also slipped, down 21p to 906p.
Miners were also weaker as metal prices edged lower on profit taking, and renewed concerns about demand. Even if the US banking bailout is successful, a sustained recovery in the global economy is not likely to happen very quickly. So copper came off yesterday's four month highs, helping push Antofagasta 43p lower to 518p and Rio Tinto down 158p to £21.34.
