The UK water sector is very much in the public eye. The sector has only three listed companies – Pennon (PNN), United Utilities (UU.) and Severn Trent (SVT) – left from the original 10 privatised in the 1990s. In addition to these larger full-service companies (clean and waste water) there are more than a dozen local, ‘water-only’ companies, all of which are private.
We had planned a deep dive into one stock (Severn Trent) but cannot ignore the elephants in the room. A month ago the biggest concerns were leaks, raw sewage discharge, investment levels/customer bills in the next five-year regulatory cycle (known as AMP8) from 2025, debt and dividends. Today, however, we have to focus on the whole sector’s financial viability, grave concerns about underinvestment and whether the sector is still viable in its current form.
The main concerns are around debt levels – current and future. Debt is high relative to market capitalisations and profitability, but has been so for years – no one has tried to hide this fact and everything, largely, has been within the regulatory rules. These are large and complex issues and we can only barely scratch the surface here.