Severn Trent's relatively new chief executive Tony Wray believes the company has turned a corner and he may have a point. Once you strip out the exceptionals, Severn Trent's pre-tax profits rose by a very healthy 16 per cent.

That is largely in line with the sector, and reflects rising water bills, but there are other indicators that the company has managed to pull up its socks after the problems it has encountered in the early part of the decade.

In the final two years of the five year price control period the company is performing better than its Ofwat targets and estimates that its efficiency savings will be worth £30 million in 2009. It has restructured, cutting out 130 jobs, and has seen a 34 per cent reduction in customer complaints. It has also managed to secure funding for future capital investment in a very tight credit market and has delivered an annual increase of dividends of 3 per cent above the rate of inflation.

There are challenges out there, not least that management may take their eye off the ball as negotiations with the water regulator over the next control period step up. However, on the big issue of energy prices, Severn has demonstrated smart thinking by hedging at half the current market price.

The takeover premium for water companies has now largely disappeared, as the credit crunch persists, which means that share prices are down at more realistic levels. Now that the froth has gone out of this market, the yield begins to look more attractive.

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