Pennon (PNN) has reason to be feeling a little smug. The group is the only one of the listed water companies to have received 'enhanced' status from water regulator Ofwat for its 2015-20 business plan. As a result, Pennon's South West Water business has already received its draft determination from Ofwat, whereas the other water companies will have to wait until August. That means Pennon has a head start on implementing its plan, which promises to keep customer bills tracking below inflation.
South West Water is performing well in the current regulatory period, too. Operating profit rose 6 per cent to £227m, as the rise in costs was less than that allowed for by Ofwat. But life at waste division Viridor is more troubled. A squeeze on local government finances and higher landfill taxes have hit demand and landfill operators have resorted to aggressive pricing.
Pennon says Viridor's cash profits in the first half will be materially lower year on year. The fight back, which involves building a leading position in energy from waste (EfW), should start to kick in during the second half. Pennon says five EfW plants should start up this year, which will mean Viridor's profits grow over the full year. The ultimate aim is to grab a 15 per cent share of the UK EfW market by 2020, which management says will put Viridor in the top three.
Pennon booked a £49m exceptional write-down for its landfill business last year to reflect asset impairment and extra provisions. That was, however, less than the £176m of exceptional charges -again mainly relating to landfill - that it took last year, so reported profits leapt. On an adjusted basis, group pre-tax profit rose 9 per cent to £207m, with adjusted diluted earnings per share up 6 per cent to 42.4p. City consensus is for £202m and 39.4p for the current financial year.
| PENNON (PNN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 764p | MARKET VALUE: | £2.9bn | |
| TOUCH: | 763-764p | 12-MONTH HIGH: | 790p | LOW: 629p |
| DIVIDEND YIELD: | 4% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 240p* | NET DEBT: | 183% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 1.07 | 186 | 40.4 | 22.55 |
| 2011 | 1.16 | 189 | 48.4 | 24.65 |
| 2012 | 1.23 | 201 | 48.1 | 26.52 |
| 2013 | 1.20 | 14 | 5.7 | 28.46 |
| 2014 | 1.32 | 159 | 38.8 | 30.31 |
| % change | +10 | +1067 | +581 | +7 |
Ex-div: 6 Aug Payment: 3 Oct *Includes intangible assets of £370m, or 98p a share | ||||
