Three Month Review

10 Mar 2005 16:06

European Utilities Trust PLC10 March 2005 European Utilities Trust 3 Month Review (unaudited) to March 2005 28.02.05 1 month 3 6 27.02.04 28.02.03 28.02.02 28.02.01 29.02.00 Since months months - - - - - launch* 28.02.05 27.02.04 28.02.03 28.02.02 28.02.01 EUT Total Assets (£m) 27.71 -0.1% 8.1% 19.6% 23.1% - - - - 19.6% EUT Ords Price 138.50 1.1% 18.9% 31.3% 23.1% 114.3% -54.0% -43.8% -31.8% 38.5% EUT Ords NAV 172.53 -0.3% 14.4% 36.6% 35.1% 67.2% -45.8% -38.9% -42.5% 83.4% EUT ZCP Price 282.50 -0.7% 4.2% 13.0% 17.2% 8.1% 4.0% 4.0% 15.4% 182.5% EUT ZCP NAV 260.44 0.5% 1.7% 3.1% 8.4% - - - - 160.4% DJ Euro Stoxx Utilities 160.61 0.0% 8.7% 20.4% 25.0% 30.9% -25.9% -11.3% -9.8% 111.1% Index GBP DJ Euro Stoxx Telecom Index 228.85 -2.4% 2.4% 20.4% 12.5% 32.0% -19.5% -34.1% -56.3% 123.0% GBP DJ Euro Stoxx Composite GBP 181.08 -0.9% 6.2% 20.4% 19.9% 31.4% -23.5% -21.7% -39.2% 115.4% EUT Unit** Price 176.76 0.6% 15.0% 26.4% 21.5% 86.1% -38.6% -31.1% -19.2% 76.8% EUT Unit** NAV 195.88 EUT Ords Shares -19.7% discount EUT ZCP Shares 8.5% premium EUT Units** -9.8% discount Hurdle Rate*** Terminal Cover EUT Ords 1.7% - EUT ZCP -5.4% 1.38x 4.7% yield *launch: 20.06.94 **Unit calculated as weighted average of Ords + ZDP shares in issue ***Rate at which company's gross assets must rise to repay stated mid-market share price on wind-up With continued tightening of monetary policy from generational lows in the US,Europe and UK, the strong advances of stock markets in the final quarter of 2004proved contrary to our expectations. Utilities continued to perform well overthis time, although this may have been more indicative of investor's generalwariness of the sustainability of the broader market rally, than the value onoffer within the UK Utility sector. Perhaps the most prominent development in the European utility sector was thesuccessful conclusion of the quinquennial water review and the resultant bidspeculation surrounding stocks such as Pennon Group and AWG. This was amplifiedby power of veto on UK water mergers passing to the EU competition commission onDecember 29th. In the event, the Final Determination from OFWAT was broadly favourable toequity investors. Average household bills will rise over the five years to 2010by 18%, whilst average annual price limits have been set at 4.2%. This is alittle better than previously indicated. Also of benefit was industry capitalexpenditure which at £16.8bn over the period was slightly more accommodating towater company balance sheets than previously feared. The cost of capital wasleft unchanged at 5.1% post tax real return. This will ensure a slightly greatergrowth in company's regulated asset bases that in turn will increase equityvaluations over time. To this end we have sold our holding in East Surrey Holdings, although we havemaintained our holding of AWG as management undertake positive steps to improveand realise value from its non-regulated assets. Of anecdotal interest has been the re-listing of British Energy shares onJanuary 17th having been removed since the previous October. The company iscertainly not what we would classify as a traditional utility. It is a nuclearelectric generator without the hedge of supplying to its own customer base. As aconsequence, the valuation of the company is extremely sensitive to power priceexpectations and its own output drivers. As such, it is more akin to a cyclicalcommodity business than a utility. The most significant shift in asset allocation over the period was there-purchase of the two German utilities E.On and RWE. With greater confidence onthe power price outlook and anticipation that the incoming regulator will provetoothless, the German stocks are benefiting from earnings upgrades together withencouraging dividend announcements. Having seen these shares languish againstEuropean peers over recent months, it seems an opportune time to re-enter thesestocks that are providing tangible earnings and dividend growth. As Sias (Italian toll road) and the highly regulated Red Electrica (Spanishelectricity network operator) benefited from the bond yield relative rating atthe start of the year, we subsequently sold our holdings as valuations lookedincreasingly stretched. Our Greek holding PPC was sold as regulatory andpolitical uncertainty weighed on the valuation. This was also our rationale forselling Endesa due to a White Paper on Spanish utility regulation that is likelyto bring significant change to the sector in the summer. We have shown reasonable performance against our composite benchmark over recentmonths despite our limited exposure to the UK water sector. Telecom stocks havebeen decidedly out of favour since the start of the year, and ourout-performance is a result of the diversified approach we have taken in thefund together with maintaining our exposure to investments that we believe arenot fully priced by the markets such as International Power. 9th March 2005 Premier Fund Managers Source: Premier Fund Managers Limited as at 28/02/05. MAF3489 This information is provided by RNS The company news service from the London Stock Exchange