Water companies in the UK are required to walk a delicate line between keeping customers, investors and the regulator happy. United Utilities’ (UU.) latest results show a company that is doing very well with customers – it recently achieved its best ever satisfaction score – but investors were less pleased, sending the shares down on results day.
The source of investor ire was a steep fall in earnings, which were impacted by an increase in net finance expense due to the impact of higher RPI inflation on the group’s index-linked debt. Return on regulated equity also missed analyst expectations, coming in at 7.7 per cent against an 8.2 per cent target.
This is not to say it’s all bad news for the group. It expects to generate roughly £100m in outperformance on total expenditure over the regulatory cycle, and expects to generate a cumulative reward from its outcome delivery incentives, despite its risks being heavily skewed towards the downside.
Outperformance is being linked in large part to its “systems thinking” initiative, a data and technology-led approach which includes, among other things, the use of satellite technology to help detect leaks and machine learning to manage the network. This approach has so far led to £250m in outperformance, which the group is looking to plough into resilience projects.
Bloomberg consensus gives adjusted EPS of 51p in the year to March 2019 (from 44.7p in 2018).
| UNITED UTILITIES (UU.) | ||||
| ORD PRICE: | 786p | MARKET VALUE: | £5.36bn | |
| TOUCH: | 785.2-786p | 12-MONTH HIGH: | 1,078p | LOW: 648p |
| DIVIDEND YIELD: | 5.1% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 433p | NET DEBT: | £7.4bn | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 1.69 | 543 | 36.0 | 36.00 |
| 2015 | 1.72 | 342 | 39.8 | 37.70 |
| 2016 | 1.73 | 354 | 58.3 | 38.45 |
| 2017 | 1.70 | 442 | 63.6 | 38.87 |
| 2018 | 1.74 | 432 | 52.0 | 39.73 |
| % change | +2 | -2 | -18 | +2 |
| Ex-div: | 21 Jun | |||
| Payment: | 3 Aug | |||
