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United Utilities continues service focus

The group’s work on customer satisfaction will be music to Ofwat’s ears
November 21, 2018

United Utilities (UU.) performed broadly in line with expectations in the six months to September, maintaining its focus on customer service and innovation. However, the real focus for investors will be how water regulator Ofwat judges the group’s business plan ahead of the upcoming five-year regulatory period, and the potential implications for dividends.

IC TIP: Hold at 754p

The next update on the regulatory front won’t be until the new year, but the utility has been making encouraging progress on its customer service and innovation initiatives, two areas of particular focus for the regulator. The group has made continual improvement in customer service, leading to its being rated the leading water and wastewater company by the UK Customer Satisfaction Index. Management expects this to translate to an Outcome Delivery Incentive – a target-based system of penalties or rewards used to manage water utility performance – payment of £11m or more by the time the current regulatory period ends in 2020.

Systems thinking, the group’s technology and data-focused innovation initiative, has also impressed. It uses a range of emerging technologies such as artificial intelligence, 3D printing and virtual reality to run the network more efficiently and contributes around £450m of the savings expected between 2020 and 2025.

Analyst RBC Capital Markets is forecasting adjusted EPS of 56p for the March 2019 year-end (52p in FY2018).

UNITED UTILITIES (UU.)   
ORD PRICE:754pMARKET VALUE:£5.14bn
TOUCH:751-754p12-MONTH HIGH:833pLOW: 649p
DIVIDEND YIELD:5.3%PE RATIO:14
NET ASSET VALUE:435pNET DEBT:£6.91bn
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201787624228.913.24
201891626031.213.76
% change+5+7+8+4
Ex-div:20 Dec   
Payment:01 Feb