United Utilities' full-year results were slightly ahead of analysts' expectations, although the dividend was cut. That largely reflects last summer's 170p per share cash handout, funded from selling its electricity arm. Still, management has promised 5 per cent dividend growth next year.
The regulated division's operating profit rose 11 per cent in the period to £678m. And, while United's efficiency record here has been poor in the past, there's evidence that improvements are coming through - leakage targets were achieved and a further £7m of cost savings are expected next year. Meanwhile, the non-regulated unit's operating profit rose 9 per cent to £69m, reflecting an increased contribution from the international operations.
As with other regulated water companies, United has submitted its final business plan to regulator, Ofwat, for the period - covering the years 2010-2015. Having reduced its capital expenditure plans slightly, United has also set itself greater efficiency challenges and now awaits the regulator's draft determination on 23 July. Although chief financial officer Tim Weller admits there's "an element of running to stand still" as efficiency gains are being wiped out by higher power costs and rising levels of bad debt.
Indeed, bad debts reached £55m, or 3.4 per cent of turnover - that's up nearly £20m over two years. "If it hadn't increased, we would be outperforming efficiency targets," notes Mr Weller. This is a problem for all water companies and United is focused on maintaining levels of cash collection, as well as the introduction of payment plans where appropriate.
Still, worries about post-credit crunch debt financing are abating, with United having raised £1bn in the period. And the fact that 40 per cent (£2bn) of United's debt is index linked is also attractive in the current environment, with analysts especially pleased to see that the average interest rate has dropped to 4.7 per cent from 5.8 per cent within a year.
Broker Citi forecasts pre-tax profits of £504m for 2010, with adjusted EPS of 53.2p (51.7p: 2009).
| UNITED UTILITIES (UU.) | ||||
|---|---|---|---|---|
| ORD PRICE: | 537p | MARKET VALUE: | £3,659.6m | |
| TOUCH: | 536-537p | 12-MONTH HIGH: | 763p | LOW: 450p |
| DIVIDEND YIELD: | 6.1% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 212p | NET DEBT: | 339% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 2.10 | 368 | 34.5 | 42.43 |
| 2006 | 2.09 | 445 | 37.8 | 43.87 |
| 2007 | 1.99 | 502 | 40.9 | 44.93 |
| 2008 | 2.36 | 478 | 61.2 | 46.67 |
| 2009 | 2.43 | 530 | 26.5 | 32.67 |
| % change | +3 | +11 | -57 | -30 |
Ex-div: 17 Jun Payment: 3 Aug | ||||
