Market report: Tuesday close

HOUSEHOLDERS can expect inflationbusting price rises by their water suppliers when the next tariffs are set by the industry regulator. So says City broker UBS, which has just completed a major review of the water industry.

UBS is forecasting a rise of 2.5% in real terms for the five years up to 2010. This figure is arrived at before inflation, currently 2.7%, is taken into account.

The water companies need to spend billions on infrastructure, much of it dating from the Victorian era, to cope with European Union regulations and to maintain generous dividend payments.

UBS says the water sector offers attractive returns over the medium term for such low-risk investments. The sector has performed well of late, suggesting that some of the benefits have already been factored into the price.

UBS runs hot and cold on sector recommendations. It prefers Pennon, which serves the South-West and was today down 1/2p at 665p. It has raised from neutral to buy with a price target up from 660p to 730p.

It is also a fan of Severn Trent, up 1 1/2p at 731p, where it has repeated its buy rating and lifted its target price from 820p to 840p, along with AWG, serving East Anglia, 4p off at 530p. It sees the shares as a buy with the target upped from 600p to 635p.

Kelda Group, formerly Yorkshire Water, reporting on Thursday, firmed fell 1/2p to 450 1/2p. The broker remains neutral on the shares but has raised its price from 435p to 475p. United Utilities, serving the North-West and 3/4p better at 494p, also reports on Thursday and is seen as neutral, with the target price tweaked 5p higher to 460p.

Shares generally came off the boil following yesterday's surge in which the FTSE 100 index closed above 4400 for the first time this year, at a 15-month high. The Footsie fell 31.1 points to 4378.9 as the Dow opened lower this afternoon.

Brokers beg to differ about prospects for drugs giant AstraZeneca, 36p lower at 2626p. HSBC rates the shares a sell with a 12-month price target of 2360p while Deutsche Bank takes the opposite view. It is a buyer and has set a price target of 3500p.

E*Trade Securities is bullish of GlaxoSmithKline, 2p better at 1330p, ahead of tomorrow's presentation on its new product pipeline which is expected to focus on treatments for cancer and heart disease. E*Trade reckons the shares are undervalued.

In a programme trade, large lines of stock went through on the ticker - including 13.6m of BP (down 2 1/2p to 410p) at 412 3/4p, 3.7m GlaxoSmithKline at 1324p, 1.7m Granada ( 1/2p better on 123 1/2p) at 123 3/4p, and 307,872 BOC (13p down to 809 1/2p) at 827p.

Mobile phone operator Orange was suspended at 652 1/2p, delaying the deadline of the France Telecom buyout for eight days. It follows a challenge in the Paris Appeals Court by a shareholder arguing that the terms, worth e9.50 (655p), are unfair.

Rentokil Initial dipped 13 3/4p to 206 3/4p. Chief executive James Wilde says pre-tax profits rose 4.9% in the first 10 months on sales almost 6% higher. Broker Investec Securities says this was below expectations.

Marketing services group Creston rose 10 1/2p to 128p. Chief executive Don Elgie has bought 224,500 shares at 126p, taking his total holding to 3.59%.

Pubs chain Mitchells & Butlers fell 6 1/2p to 229p after going ex a special dividend worth 68p, and a 12-for-17 share consolidation.