Questor share tip: Buy Pennon for Viridor recovery Pennon owns South West Water and waste group Viridor, which has suffered from low prices for recycled material, or recyclate. This unregulated unit, which is investing around £1bn in energy-for-waste plants, offers long-term growth potential. Energy from waste in all its forms accounts for 1.5pc of the UK's electricity supply. By 2020 it could account for 10pc of total UK electricity, according to The Institution of Civil Engineers, boosted by a rise in landfill tax to £80 per tonne in April 2014, from £73 a tonne now. However, Viridor continues to suffer. Last week management said that recyclate prices had started to recover from the lows seen at the end of 2012. Prices may have passed their trough, but a rapid upturn is not expected. In the year to March, group pre-tax profit fell 1.1pc to £198.2m. This followed a 7.5pc rise in South West Water profit to £152.1m and a 36.6pc fall in Viridor profit to £36.5m. A recent bid approach to Severn Trent has boosted shares across the sector, but Pennon is probably the least likely big target in the sector. However, prospects of M&A will help provide a floor for the shares. Long-term prospects for waste management are supported by green legislation. However, the economy needs to get moving again before Viridor can perform. Trading on a 2014 multiple of 17.2, falling to 15.8 and yielding 4.3pc, Questor keeps a buy for recovery.