Join our community of smart investors

United Utilities keeps returns flowing

United Utilities shows it's still a good option for investors looking for stable, inflation-linked returns.
May 26, 2015

United Utilities (UU) outperformed its capital and operational expenditure targets for the 2010-15 regulatory period, thereby enabling the water supplier to reinvest £280m in improving customer service. Strip out a £105m loss incurred on the group's derivative and debt instruments and full-year operating profit grew 4 per cent to £653m - a sound result.

IC TIP: Buy at 991p

The utility group spent £869m on operational improvements during the final year of the Asset Management Programme 5 (AMP5) regulatory period, a £33m increase on 2014. These included £148m on infrastructure renewals. The group's time/cost quality index score - an internal efficiency measure - increased to over 95 per cent in 2014; a significant step-up from the 50 per cent rate achieved back in 2011. United has also implemented new contracting arrangements for AMP6, while re-tendering its engineering and construction deals. Projects will be allocated to partners on an incentive basis.

Bad debts accounted for 3.1 per cent of regulated revenue in 2015, up from 2.2 per cent in the previous year. Management blamed this on the "impact of economic factors on customers' ability to pay". The increase was also linked to a review of United's bad debt provisions in preparation for a systems upgrade, but management expects the rate to drop to 2.5 per cent for the 2016 year-end.

Consensus forecast for adjusted EPS this year is 44.3p, down from 51.9p in 2015.

UNITED UTILITIES (UU)

ORD PRICE:1,004pMARKET VALUE:£6.8bn
TOUCH:1,004-1,005p12-MONTH HIGH:1,045pLOW: 784p
DIVIDEND YIELD:3.8%PE RATIO:26
NET ASSET VALUE:357pNET DEBT:£5.92bn

Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20111.5132767.230.00
20121.5628046.432.00
20131.6430543.534.32
2014 (restated)1.6954336.036.04
20151.7234237.737.70
% change+2-37+5+5

Ex-div: 25 Jun

Payment: 3 Aug