Essential Utilities shares rise despite Spruce Point giving 'sell' opinion on the stock (updated)
10/03/2023 16:11
(Updates with company response in paragraph)
By Nell Mackenzie
LONDON, March 8 (Reuters) - Shares in Essential
Utilities Inc WTRG.N rose on Wednesday, shrugging off a report
from short seller Spruce Point which issued a "strong sell"
opinion on the stock.
The Spruce Point report questioned why the water company
diversified its business with a leveraged mergers and
acquisition deal to purchase Peoples, a natural gas distribution
company.
Travis Miller, an energy and utilities strategist for
Morningstar Research, said the share price movements on
Wednesday may not reflect the report's negative view on the
stock as he believed the company's investors would likely look
beyond the report.
"The typical investor in this stock will have a long-term
view on it and won't be interested in any particular report
written by an investment fund which has a short-term goal in
mind," he told Reuters.
Essential Utilities in 2018 agreed to acquire privately
owned natural gas utility Peoples in an all-cash deal worth $4.3
billion inclusive of debt. Spruce Point calculated that the
water company had paid 15x and 12x of 2018 and 2019 adjusted
EBITDA and added $1.9 billion of incremental debt to its balance
sheet, adding that the natural gas arm was falling behind in its
growth plan while its customers were having difficulty paying
bills.
"In Spruce Point’s experience, when public companies buy
assets from private equity, it rarely ends well for
shareholders," said Spruce Point in a report.
The short seller also said that the company was "unique
among its water and gas utility peers in that it reports book
overdrafts (a current liability), or cash it owes to fund
payments."
Essential Utilities said, it believed the Spruce Point
report was misleading.
"Spruce Point Capital is a hedge fund known for launching
negative campaigns against companies after taking a short
position in the company’s stock," a company spokesperson told
Reuters via email.
Essential Utilities shares have risen, at 1603 GMT, 3% since
market open on March 8, the day of the report, although they
have fallen more than 12% since the start of the year.
(Reporting by Nell Mackenzie in London
Editing by Matthew Lewis and Louise Heavens)
((Nell.Mackenzie@thomsonreuters.com;))