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United steady as he goes

TIP UPDATE: United Utilities posts results ahead of expectations as chief executive Philip Green steps down
November 24, 2010

United Utilities kick-started its results week by announcing that chief executive Philip Green would step down after five years in the job. He has overseen £600m of disposals that have streamlined United from being an eclectic mix of telecoms, outsourcing and utility to a focused regulated water group. When he steps down in March, Mr Green will hand over to Steve Mogford, currently chief executive of Selex Galileo, the defence electronics company owned by Italian organisation Finmeccanica.

IC TIP: Buy at 615p

Following on from news of the departure, the group has reported, as expected, a fall in revenues due to reduced utilities prices under the new five-year regulatory regime. This reduction, along with an increase in depreciation and property rates, was partly offset by lower employee and power costs, but meant that operating profit decreased by 5 per cent to £328m.

Underlying pre-tax profits fell by 24 per cent to £196m due to a higher interest charge on inflation-linked debt. Overall, though, management is confident that it has secured approximately £300m of financing outperformance over the five-year regulatory period compared with Ofwat estimates. And, as previously guided, the group will pay a total dividend of 30p for this year and will grow it thereafter at 2 per cent above inflation until 2015.

Investec Securities forecasts adjusted pre-tax profits of £303m and EPS of 34.2p (from £523m and 70.4p in 2010).

ORD PRICE:615pMARKET VALUE:£4.19bn
TOUCH:615-616p12-MONTH HIGH:635pLOW: 474p
DIVIDEND YIELD:5.4%PE RATIO:12
NET ASSET VALUE: 213pNET DEBT:£4.86bn

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200978719029.111.2
201076212222.510.0
% change-3-36-23-10

Ex-div: 15 Dec

Payment: 2 Feb

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