One to watch: Pennon Group

PENNON is the parent of South West Water, which supplies water and sewage services in Devon and Cornwall, and Viridor, which manages waste and recycling services and burns rubbish to generate energy.

The company combines the steady and predictable income stream from South West Water, the most efficient water business in the UK, with the high-earnings growth of Viridor, which has made a series of acquisitions over recent years.

The water business benefits from higher-than-average inflation with Ofwat, the water regulator, setting prices with reference to the retail prices index, seeking to reward the most efficient companies such as Pennon and allowing them to earn a reasonable rate of return on their assets.

Recent results came in well ahead of expectations, with revenue up 8 per cent and profits up 1.5 per cent. The firm announced a 9.3 per cent rise in its dividend and has one of the most attractive dividend growth policies in the sector. Doing business in this environmentally-sensitive area means Pennon follows a strict corporate and social responsibility program, which may appeal to more ethically-minded investors.

Pennon Group

658.5p -6.5p

Scotsman says BUY

• The value of your investment could fall and you may get back less than you invested. Take professional advice if you have any doubt about the suitability of this company for your portfolio.

BROKER SNAPS

Marston's

101.3p +0.3p

Broker says BUY

RBS Equities started coverage of pub operator and brewer Marston's with a "buy" rating and 135p price target. The broker said: "We anticipate Marston's valuation multiples will rise to reflect consistent delivery of its strategy. Trading looks resilient, growth plans sustainable and investment returns are now improving."

Majestic Wine

465p +4.75p

Broker says HOLD

ESPIRITO Santo has raised its target price on Majestic Wine from 345p to 490p, but thinks the shares are at a high-enough premium. The broker said: "While firm believers in the business model, we have resisted turning more positive on valuation grounds. Majestic shares are amongst the best performing in our coverage."