Pennon (PNN) got a head start over other water utilities in finding the cost savings and service improvements regulator Ofwat wants for the 2015-20 regulatory period. That's because South West Water received its draft determination in April, whereas the others had to wait until the summer.
The greater visibility over its business plan has allowed South West Water to push ahead with key projects, which will result in around £1bn in investment over the next five years. This will be predominately in existing assets, but there are also new projects such as the development of a water-treatment works in Plymouth, management said.
South West Water's operating profits slipped 2 per cent to £119m, due to a price freeze at South West Water. Chief financial officer David Dupont said this was implemented to "smooth out prices", which would otherwise have increased in 2014. Revenues are expected to recover in the coming years.
Pennon's waste management business, Viridor, has had a tough time, but this has been well flagged. With landfill volumes in decline, underlying cash profits fell 15 per cent to £55.3m. Sensibly, management is shifting the focus towards recycling, and the business is on track to launch five energy-recovery facilities by the year-end, two of which are already operational.
Broker Macquarie expects adjusted EPS this year of 0.37p, down from 0.43p in 2013-14.
PENNON GROUP (PNN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 901p | MARKET VALUE: | £3.6bn | |
| TOUCH: | 900.5-901p | 12-MONTH HIGH: | 905p | LOW: 630p |
| DIVIDEND YIELD: | 3.4% | PE RATIO: | 31 | |
| NET ASSET VALUE: | 252p* | NET DEBT: | 162% | |
| Half-year to 30 Sept | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 667 | 111 | 29.4 | 9.39 |
| 2014 | 692 | 115 | 19.4 | 9.98 |
| % change | +4 | +4 | -34 | +6 |
Ex-div: 29 Jan Payment: 2 Apr *Includes intangible assets of £386.9m, or 97p a share | ||||
