Pennon's (PNN) April acquisition of Bournemouth Water helped mitigate the impact of lower allowed returns for its South West Water business. As a consequence, half-year cash profits for the water segment were flat from a year ago, but it was the continued turnaround of Pennon's waste management business Viridor - particularly the shift from landfill contracts towards energy recovery - that underpinned a 16 per cent increase in group cash profits to £232m.
Around 80 per cent of waste inputs across Viridor’s ERF portfolio have been secured under long-term index-linked contracts. Viridor chief executive Ian McAulay says this has helped the business generate more "utility-esque asset returns" and makes Pennon’s risk profile more homogenous. In a sign of confidence with Ofwat's new outcome delivery incentive (ODI) measures, South West Water has 23 ODI measures carrying potential for reward or penalty, according to the quality of service. The good news is the water utility outperformed in areas including bathing water quality and odour complaints during the period, securing £2.2m in benefits.
Broker Macquarie expects adjusted EPS of 37p for the March 2016 year-end, down from 40p in 2015.
PENNON GROUP (PNN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 863p | MARKET VALUE: | £3.56bn | |
| TOUCH: | 862-863p | 12-MONTH HIGH: | 925p | LOW: 712p |
| DIVIDEND YIELD: | 3.7% | PE RATIO: | 29 | |
| NET ASSET VALUE: | 268p* | NET DEBT: | 167% | |
| Half-year to 30 Sept | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 692 | 115 | 19.4 | 9.98 |
| 2015 | 689 | 107 | 16.8 | 10.46 |
| % change | -0.4 | -7 | -13 | +5 |
Ex-div: 28 Jan Payment: 1 Apr *Includes intangible assets of £447m, or 108p a share | ||||
