United Utilities drops power unit

Many investors are backing water companies over power firms

Electricity and water provider United Utilities is planning to sell its electricity distribution network.

The news sent its shares 4% higher as analysts estimated the electricity network could fetch more than £1bn.

United operates a 58,000 kilometre (36,250 mile) network, supplying 2.2 million customers in the north west of England, excluding Merseyside.

The water business, which accounts for more than 85% of United's earnings, had stronger potential for growth, it said.

"We are initiating a sale process for our electricity distribution assets," said chief executive Philip Green. "We expect to return to shareholders the net equity proceeds from the proposed sale."

Analysts said that the a number of buyers might be interested in acquiring United's assets, which could help push the price higher.

Trickling down

The company also announced a 16% rise in annual profits, with group pre-tax profit hitting £561m in the 12 months to March 31, up from £484m a year earlier.

During mid-morning trading in London, United's shares were 26.5 pence, or 3.4%, higher at 799.

Water companies are seen as a good investment because they offer a steady stream of profits that are reasonably easy to predict.

However, in recent years they have had to invest heavily in improving their infrastructure and many have been criticised for their failure to stem leaks and replace aging pipes.

Speaking on Tuesday, Mr Green said that United had met its targets for reducing leaks and had cut the number of pollution incidents in half.

The company also said it was in talks with the water industry regulator about plans for extra spending of as much as £500m to further cut sewage discharge.