Wednesday, April 23, 2008


American Water Works (AWK), a water and wastewater utility, prices its IPO at $21.50, below the expected range of $24-26. AWK is a subsidiary of RWE, a European electricity and gas company. RWE first announced it would exit its water activities in the US and the UK in 2005, according to Reuters. Following the close of the offering, RWE will still own about 64% of AWK. American Water owns regulated water and wastewater utilities that serve residential, commercial and industrial customers, and treat and deliver more than 1 bln gallons of water per day. The company is generally subject to economic regulation by state public utility commissions. The company serves 15.6 mln people in 32 states. AWK is the largest investor-owned US water and wastewater utility. The co says being regulated provides a high degree of financial stability because high barriers to entry insulate it from competitive pressures; economic regulation promotes predictability in financial planning; and its largely residential customer base promotes consistent operating results. The downside of regulation is that regulatory agencies set rates and there are extensive environmental laws. The co expects to pay a quarterly dividend of $0.20, which computes to a 3.7% annual yield... The co is profitable, if you exclude impairment charges, and 2007 revenue rose 6% to $2.21 bln... Briefing Note: Water is the generally cheapest of all utilities, including power and natural gas. However, other water utility stocks (AWR, CWCO, CWT, SWWC, VE) have been pretty lackluster over the past year which has tamped down interest in AWK.


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