Although the regulatory cycle for the UK’s water industry runs until 2020, business plans for the next cycle are already under development. Water and waste group Pennon (PNN) must be pleased with its progress against its current targets. It is preparing to submit its plan for the years 2020-25 and is on track to deliver against all of its commitments in the current cycle. The group is leading the sector in terms of return on regulated equity, and has delivered against 33 of its 36 outcome delivery incentives for a net reward of £7m.
Performance has also been strong in the recently deregulated non-household water sector. The retail market was opened up to competition in April and, despite new entrants flooding into the sector, the group’s joint venture, Pennon Water Services, has grown both market share and margins.
Beyond the water sector, things have continued to improve for the waste division. In September, Viridor, Pennon’s waste business, signed an agreement to exit a troublesome PFI contract with Greater Manchester Waste Disposal Authority. First-half cash profits for the group increased 5.2 per cent to £66.6m. Growth is being driven by the group’s energy recovery facilities – eight are operational currently, and another four are are in various stages of development.
Analysts at Deutsche Bank are forecasting adjusted pre tax profits of £248m in the year to March 2018, giving EPS of 46.9p (from £250m and 47.1p FY2017).
| PENNON (PNN) | ||||
| ORD PRICE: | 782p | MARKET VALUE: | £3.3bn | |
| TOUCH: | 782-782.5p | 12-MONTH HIGH: | 947p | LOW: 763p |
| DIVIDEND YIELD: | 4.7% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 290p* | NET DEBT: | 184% | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 686 | 102 | 17.7 | 11.09 |
| 2017 | 727 | 130 | 21.8 | 11.97 |
| % change | +6 | +27 | +23 | +8 |
| Ex-div: | 25 Jan | |||
| Payment: | 04 Apr | |||
| *Includes intangible assets of £459m, or 109p a share | ||||
