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United Utilities remains defensive

RESULTS: Utility giant United Utilities reported solid progress at the half-year stage, while the yield remains attractive
November 23, 2011

United Utilities saw revenue rise after applying a 4.5 per cent regulated price increase – in line with inflation. However, underlying pre-tax profit at the utility giant slipped 5 per cent to £185m as the group invested in its network of pipes and reservoirs and the cost of its debt crept up.

IC TIP: Buy at 602p

The spend on repairing and replacing old water infrastructure grew £18m in the period to £66m, which brought total capital investment in the first half to £275m – chief executive Steve Mogford is confident that the group is on target to hit £700m for the full-year. Meanwhile, the statutory gearing – or group net debt as a proportion of regulatory capital value – was stable at 60 per cent, and well within regulator Ofwat's 55-65 per cent range. The underlying interest rate on borrowings, however, crept up 10 basis points to 5.8 per cent as index-linked debt rose with inflation. But as household finances come under increasing pressure the water utility has improved its debt collection systems – bad debts as a proportion or revenue fell to 2.1 per cent from 2.5 per cent a year ago.

Investec Securities expects full-year adjusted pre-tax profit of £310m, giving EPS of 35.5p (from £329m and 43.2p in 2011).

UNITED UTILITIES (UU.)

ORD PRICE:602pMARKET VALUE:£4.1bn
TOUCH:602-603p12-MONTH HIGH:644pLOW: 529p
DIVIDEND YIELD:5.1%PE RATIO:9
NET ASSET VALUE: 258pNET DEBT:285%

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201076212222.510.0
201179312420.810.7
% change+4+2-8+7

Ex-div: 14 Dec

Payment: 1 Feb