Pennon (PNN) saw sales dip in the first half of the 2020 financial year due to an 8.1 per cent revenue decline in its waste management business, Viridor. This stemmed from exiting a recycling contract in Greater Manchester and lower landfill volumes after two site closures. But the segment’s underlying cash profits (Ebitda) still rose by 10 per cent to £92.4m, driven by its energy recovery facilities (ERFs).
Pennon’s 10 operating ERFs, which convert waste into electricity and heat, are well-placed to capitalise on the UK’s projected annual capacity gap of 7m tonnes through to 2035. A new facility being constructed at Avonmouth will provide an additional 10 per cent of operational capacity. With the “Blue Planet effect” spurring demand for plastics recycling capabilities, the group is building a £65m plastics processing facility on the same site. It has already secured a five-year contract to supply Unilever with recycled material.
Over in the regulated water business, following an exceptionally hot summer last year, demand at South West Water fell, pushing revenue down 3 per cent. But it has maintained an industry-leading return on regulated equity of 11.8 per cent across the current regulatory cycle, AMP6.
RBC Capital Markets forecasts pre-tax profit of £277m and EPS of 53.5p for the March full year, up from £260m and 51.1p in FY2019.
PENNON (PNN) | ||||
ORD PRICE: | 959p | MARKET VALUE: | £4.04bn | |
TOUCH: | 959-960p | 12-MONTH HIGH: | 959p | LOW: 681p |
DIVIDEND YIELD: | 4.4% | PE RATIO: | 17 | |
NET ASSET VALUE: | 311p | NET DEBT: | £3.18bn* |
Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2018 | 747 | 134 | 25.6 | 12.84 |
2019 | 712 | 163 | 30.1 | 13.66 |
% change | -5 | +22 | +18 | +6 |
Ex-div: | 23 Jan | |||
Payment: | 03 Apr | |||
*Excludes £118m in lease liabilities |