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What happened? UU''s CMD focused on delivery of the investment program over the next five years. No new financial guidance was provided with management noting the guidance previously provided for targeted outperformance of ''at least 100bps'' over AMP8 was more detail than provided at the same stage in AMP7. The CFO highlighted UU is outperforming on financing with debt issuance to date and that this is one of the reasons for confidence around the delivery of targeted outperformance, but there was no breakdown of targeted outperformance across the various components. The event was not webcast although we understand some videos will be uploaded to the website over the coming weeks. Summary of key topics of discussion . Simpler, smarter, better: This was the mantra of the day, better'' with emphasis on standardisation of designs with modular solutions to enable rapid deployment. . Delivery models: Management emphasised the use of different models for delivery; an ''enterprise'' model will be adopted for the largest projects, a ''design and build'' model which underpinned AMP7 will be used for medium sized projects and a ''build only'' approach using regional partners for the smallest projects (80% of CSO projects will be completed under this model). The CEO of Costain, one of UU''s enterprise partners which has worked with UU since AMP4, was present for a QandA session; the key takeaway being he believes UU has put together a high-quality plan and the alignment between partners under the enterprise model should ensure a collaborative approach to delivery. . ''Rightsourcing'': An emphasis was placed on ''rightsourcing'' rather than focusing on insourcing our outsourcing. UU intends to undertake projects in-house where it believes that offers the best/cheapest option and will use the supply chain where that is best suited; there is no ''one size fits all'' approach. . Cunliffe: On regulation UU anticipates the final version of the Cunliffe report should come in 5-6...
United Utilities Group PLC
We lower our FY26 EPS estimate by ~4%, as we move operating costs and net finance expense closer to guidance. We do not consider the changes to be material; our TP and rating are unchanged.
Overall view on the call: Little to materially impact the shares today with management largely deferring requests for further detail around targeted outperformance during AMP8 to the CMD planned for 19 June, whilst acknowledging the potential for some uncertainty around ODIs given the ongoing FD referrals to the CMA across the water sector. Key points from the call: . ODIs: This morning management guided to an ODI penalty in FY26. On the call no information was provided around the potential magnitude of this penalty, however, it was noted the penalty would likely be related to sewage flooding and CSOs, areas which are seeing investment activity with the expectation performance will improve across AMP8 leading to a net positive reward overall across the AMP (from ODIs and PCDs). . Detail around AMP8 outperformance to come: Quite a few questions around the detail of the ''at least 100bps'' outperformance targeted during AMP8. Management intends to provide more detail at the CMD in June around the breakdown of targeted outperformance across the business. . Finance costs expected to be main contributor: It was noted that financing would again be the main driver of outperformance, driven by the track record and strong balance sheet, with additional contribution from ODIs, PCDs and totex. Financing accounted for +2.8% of the 2.7% RORE outperformance delivered in AMP7 over the 4.0% base (pre OFWAT methodology change) during AMP7, with +2.0% from tax and +0.5% from ODIs, offset by -2.2% from totex and -0.4% from retail. Further information around the expected financing outperformance will be provided at the CMD. Other points from the call: . Outperformance target benefits from higher near-term infl: It was noted that the target includes some benefit from inflation being higher at the start of AMP8 with bank forecasts in the near-term reverting to 2% inflation two years out. . Potential impact from CMA appeals: Management acknowledged some uncertainty...
What happened? YE results are broadly in-line with consensus, although underlying PBT was ~3% below consensus and net debt was ~1% above. With FY26 capex guidance higher than consensus and the expectation of an ODI penalty in FY26 the outlook has the potential to be a little underwhelming. United Utilities has released its FY25 results. Key financials: . Underlying revenue in line, GBP2,145m vs. Bberg consensus GBP2,139m (+0.3%) . Underlying EBIT in line, GBP634m vs. Bberg consensus GBP630m (+0.5%) . Underlying PBT miss, GBP339m vs. Bberg consensus GBP349m (-3.0%) . Underlying Net Income in line, GBP338m vs. Bberg consensus GBP336m (+0.6%) . Underlying EPS in line, 49.6p vs. Bberg 49.3p (+0.6%) . RCV of GBP15.4bn was 0.4% ahead of our GBP15.3bn forecast (no BBG consensus avail). . Net debt slight miss, GBP9,345m vs. Bberg consensus GBP9,243m (+1.1%) . DPS in line, 51.9p vs. Bberg 51.7p (+0.3%) New guidance: . FY26 revenue guidance of GBP2.5-2.6bn compares with consensus at GBP2.53bn. . Underlying op costs are expected to decrease in FY26 (no magnitude provided), our forecasts incorporate a decline. . Depreciation is guided to increase ~GBP50m, in-line with our forecasts. . Net finance costs are guided to increase ~GBP50m as debt rises, our forecasts incorporate a smaller rise. . FY26 capex guidance of GBP1.5bn is in-line with our GBP1.54bn forecast which reflects spending ramp up as we enter AMP8, but ahead of consensus at ~GBP1.3bn. . UU guides to an ODI penalty for FY26 reflecting the introduction of new measures in AMP8 with performance improvements expected to be progressive over the AMP which may be a bit of a disappointment in the near-term. . UU aims to outperform the regulatory contract by at least 100bps during AMP8 whist maintaining gearing within the target range of 55-65%. Conference call will take place at 10:30 UK time, dial in via Zoom: https://us06web.zoom.us/j/86923795894?pwd=4OgY6XK14ljE0BBnOH1R4ZLnwU1zAd.1, PIN 869 2379 5894 and 583997
What happened? UU hosted a call post its trading update, the key points are summarised below. We continue to view UU as attractive trading at a 4.7% premium to FY26 RCV, a discount to SVT at a 10.8% premium. BNPP Exane View: . Funded investment program: Management stated the AMP8 investment program is funded without recourse to additional equity. . Too early to guide to targeted RORE over AMP8: Management stated, in contrast to Pennon, that it was too early to provide guidance on targeted RORE returns over AMP8. A first-year target will likely be provided at the CMD on 19 June.
What happened? With results in-line and guidance largely unchanged the focus of the call was on the looming OFWAT final determination (expected 19 December) and the potential impact if UU was to see its credit rating cut. Management emphasised the strong balance sheet in the context of the sector (UU''s debt is currently rated 1 notch above peers) and ongoing dialogue with OFWAT to resolve the outstanding differences (principally totex, ODIs, gated mechanism, financing) ahead of the final determination. Although management believes there are grounds for the cost of debt to rise at the final determination, there is no additional visibility into OFWAT''s propensity to increase the cost of equity. Rating agencies are adding their voice to the call for improvements by the time of the final determination, which only increases the focus on the 19 December final determinations. Key points from the call: . Allowed WACC returns: UU management noted water companies have made representations calling for a higher cost of equity at the final determination, but UU management do not have insight into the extent to which OFWAT may revise the CoE at the final determination. Management noted the cost of debt should be more data-driven and with recent debt issuance across the sector coming at a cost of ~6.3% (nominal), management noted there is not much room for additional equity returns between this cost of debt and the cost of equity at the draft determination of 4.8% real + 2% inflation. . Timing of post final determination financing update: Management wants to leave sufficient time to understand the final determination and would not commit to a precise time period by which it would update the market with the financing outlook for the next regulatory period, including the dividend policy. The intention remains to update the market in ''early'' 2025. . Potential impact of a cut to credit rating: There was some discussion of recent credit rating agency moves to cut the...
FY24 results were in-line with consensus. FY25 revenue guidance for growth of 10% was ~2% above pre-results consensus, however operating costs were also guided to rise faster than inflation, suggesting little upside to consensus. Our own estimates rise substantially as we belatedly factor in developments since our initiation October 2023 as well as guidance. Focus remains on 12 June OFWAT draft determination The AMP8 business plan, submitted in October 2023, is being discussed with regulators and government ahead of OFWAT''s draft determination on the plan to be released next month. The principal focus of these discussions is on how best to deliver the statutory obligations to improve performance, with UU''s adaptive planning scenario, which achieves mandated aims with reduced spending levels, received well by stakeholders. The draft determination will also specify important drivers of plan economics including the cost of capital, the quality assessment of the plan, totex and ODIs. With limited upside post model updates we retain our Neutral stance We update our model to reflect inflation developments since our initiation in October 2023 as well as FY 2024 results/guidance, with the result that we are now 3% ahead of consensus for FY25e EBITDA. We also roll forwards our valuation to March 2025. Our target price increases 15% but with limited upside we retain our Neutral rating. We continue to believe that UU will be a beneficiary of the ''capex wave'' across the UK water industry which should drive RAB and earnings growth. We believe, however, UU lacks outperformance potential vs peers given its lower dividend yield.
Following the departure of the covering analyst, we are suspending coverage of United Utilities Group, withdrawing our forecasts, target price and recommendation with immediate effect.
United Utilities met consensus expectations with positive results for the H1 23/24. The rise in revenue and underlying EBIT was primarily driven by an uptick in regulatory revenue linked to inflation. Nevertheless, rising costs due to inflation put pressure on the margin, causing a year-on-year decline of 50 basis points. Moving ahead, the company reaffirmed its guidance and unveiled an ambitious new business plan spanning from 2025 to 2030.
1H24 in line at the underlying operating profit line, beat at EPS UU has reported 1H24 underlying operating profit of £271m (up 4.9%, INVe £277m, consensus £275m), underlying EPS of 13.2p (vs. (1.8)p in 1H23, INVe 10.5p, consensus 12.2p), and an interim dividend of 16.59p (up 9.5%, INVe 16.59p). Net debt of £8.5bn was in line with our, and consensus’, estimate of £8.4bn. (See Figure 1 overleaf). Presentation to be held at 9am, with slides here. FY24 guidance – no change Revenue is expected to be around £150m higher than 2022/23, reflecting the uplift from November 2022 CPIH of 9.4%, partially offset by a £20m net impact of over/under-recovery during 2022/23 and 2021/22. This is unchanged vs. the around £150m higher guidance at FY23. Our pre-existing estimates assume a £148m increase. Underlying operating costs are expected to be £60m higher year-on-year, reflecting inflationary increases, higher power and labour costs, and the impact of additional investments. Guidance provided at FY23 pointed to an increase of around £60m. Our pre-existing estimates assume a £57m increase. Underlying finance expense is expected to be at least £150m lower year-on-year, due to the impact of lower inflation on index-linked debt. At FY23, guidance was for at ‘least £150m lower’. Our pre-existing estimates point to a £147m decrease, but we note that each 1% on inflation impacts the finance charge by c.£45m. Capex in 2023/24 is expected to be in the range of £720-800m, in line with the £720-800m guidance at FY23. Our pre-existing estimate is for £853m. UU remains confident in targeting a net customer ODI reward of around £200m in total over AMP7. No change. For FY24, UU is forecasting to double its ODI reward, with guidance of over £50m.
£13.7bn totex, a big step up £13.7 billion totex across 2025-30, with 50% nominal RCV growth across the period. On our estimates, the totex ask is c.91% above AMP7 levels (including Green Recovery and Accelerated Infrastructure Development spend). Balance sheet – UU highlighting balance sheet strength, with current 58% gearing providing flexibility to finance the full plan with average gearing of 65% over the AMP, based on Ofwat’s WACC assumptions, and without assuming new equity. Ofwat’s PR24 final methodology initial view of WACC has been used, but UU has alluded to an independent WACC assessment that suggests a WACC c.60 basis points higher. The plan also assumes a continuation of its current dividend policy, and no outperformance or rewards. An affordability scheme worth £525m and helping more than 1 in 6 households forms part of the plan. FY24 performance in line with expectations UU also issued a trading update for FY24, indicating that current trading is in line with the group’s expectations for the period, and reiterating the technical guidance for underlying performance provided at its full year results on 25th May 2023. Presentation at 9am today UU will host webcast presentation for investors and analysts starting at 9.00am today => HERE to access.
Thames Water, the largest water company in the UK, is facing serious financial issues. It requires a capital injection to alleviate its substantial £14bn debt. The UK government is considering nationalising the company in the event of failure. This situation triggers an alarm for this highly-leveraged sector.
Following United Utilities FY23 results and a subsequent session with management, we have updated our estimates, cutting our FY24E underlying operating profit by 8.4% to £519m, but with negligible change in FY25E, the last year of AMP7. At EPS, our FY24E falls by 5% to 31.1p, but FY25E advances 22.8% to 61.8p, a consequence of factoring in an assumed nil current tax charge due to full expensing. AMP8 commences in April 25, and business plans will be submitted in early October of this year. Other listed water companies will hold capital market events in October, and we are hopeful that United Utilities will do likewise. However, it is clear that United Utilities will submit a plan with a material step-up in totex vs. AMP7, with the Accelerated infrastructure Project and storm overflows key drivers. The former is expressed in 2020/21 terms, and on the same basis, our model factors in c.£9.1bn totex in AMP8, c.63% above allowed totex (ex. retail) at AMP7 final determinations. Final determinations are a long way off, and there will be many moving parts. At this stage, we can only make multiple assumptions as to phasing, PAYG rates, the capex component, impact on opex, etc., and we suggest that the P&L for FY26E and beyond should be viewed as indicative. The financing picture will also be clearer during the regulatory process, but our current modelling suggests only a modest uplift in regulatory gearing in the early years of the AMP. Our target price nudges up slightly to 1,250p, suggesting a 12-month potential return of c.23%. We remain Buyers.
Feature article: UK Water – making waves Over the past year, UK utility share prices have been volatile, especially within the electricity sub-sector. The combination of the war in Ukraine and the associated impact of fluctuating gas prices, along with sharply higher inflation and the consequential rise in interest rates, have destabilised much of the sector. Indeed, most sector constituents have seen their share pieces fall (although not seriously), while Centrica, the UK’s leading gas company, has bucked the trend, with a near 50% rise over the past year, albeit from a very low base. The two largest quoted water companies have announced their full-year results in recent days (the announcement of Pennon’s full-year results post-dates the compilation of this publication). The results of the two leading water stocks, Severn Trent and United Utilities, contained few surprises; but the latter’s revenues fell by over 2%. The impact of surging inflation has seen a sharp spike in those interest payments associated with index-linked bonds, a funding mechanism to which United Utilities, in particular, is exposed; consequently, its adjusted EPS for 2022/23 was negative.
UU/ SVT VTA STX AVO APAX CSN CLIG HAT ICGT PIN RECI
United Utilities reported weak results for FY22/23, which were in line with the consensus expectations. The decline in revenue and EBIT was a result of lower-than-expected consumption and increased inflationary pressure on core costs. Looking ahead to FY23/24, the company anticipates an increase in regulatory revenue due to the inflation linkage. Additionally, United Utilities has announced a capex range of £720m to £800m to address additional investments.
FY23 in line… Underlying operating profit of £441m (INVe £446m, consensus £441m). Underlying EPS (1.3)p (INVe (3.6)p, cons. (3.5)p). Dividend 45.51p (INVe 45.49p, cons. 46p). Net debt of £8.2bn was in-line with our estimate of £8.07bn (consensus £8.17bn). ODI net outperformance reward of £25m (vs. guidance of £20-25m). ODI guidance for AMP7 remains unchanged with a net reward target of c.£200m. UU has delivered RORE of 11%, well above the base return of 4.0%, with ODIs, financing performance and tax in positive territory. …guidance suggests downside to our FY24E estimates Guidance for FY24 is for revenue to be around £150m higher than the £1.824bn reported in FY23. Our pre-existing estimate is £2.04bn. Operating costs are expected to be around £60m higher than the £960m reported in FY23 (including IRE costs). We have £1,036m in our pre-existing estimates (including IRE costs). We suggest that the aggregate of the above could see downward pressure on our pre-existing FY24E underlying operating profit. Underlying finance expense is expected to be £150m lower than the £475m reported in FY23 due to inflation on £4.5bn of index-linked debt. We have £221m in our pre-existing estimates. UU references its CPIH growth policy for AMP7, and for FY24E we have 49.76p in our pre-existing estimates, consistent with the 9.3% CPIH UU has referenced.
Following the recent trading statement, the Budget, Ofwat’s draft decisions on the Accelerated Infrastructure Delivery Project, and ahead of UU’s FY23 results scheduled for 25th May 2023, we have updated our estimates. In absolute terms, there is little change to our FY23E estimates (Figure 1), although the low base translates into a marked % movement. We now forecast EPS of (3.5)p vs. (6.8)p previously. We are marginally ahead of consensus. Looking beyond FY23E, our EPS estimates are raised by 43.6% and 8.5% for FY24E and FY25E respectively, reflecting the impact of lower inflation assumptions on financial expenses in FY24E, the recovery in FY25E of consumption shortfalls that have impacted FY23, and an assumption of a 10% effective tax rate through to FY26E following the announcements in March’s Budget. We look to UU to provide more colour in this respect in due course. There are moving parts in our valuation, but in totality, little change. We nudge our target price up slightly to 1,225p (vs. 1,220p), implying a potential total return of c.17%, and we remain BUYERS
Trading statement suggests moving parts in P&L Revenue is now expected to be c.1% lower than the previous guidance of a 1% drop vs. FY22, due to lower consumption, the impact of which will be recovered in future years. This suggests an impact of c.£19m in FY23. Operating cost guidance is unchanged. Underlying net finance expense for FY23 is now expected to be around £175m higher than last year, some £10m higher than previous guidance, largely as a consequence of higher inflation. An underlying tax credit for FY23 of between £15m and £25m, reflecting the higher interest charge and a change in approach to carried forward tax losses is now expected, vs. previous guidance of a charge of £5m to £10m. In aggregate, the impacts broadly offset, but we have placed our estimates under review given the line item impact. Group net debt is expected to increase compared with the interim result, largely reflecting the impact of inflation on index-linked debt. Our FY23E net debt estimate is £8.1bn vs. £7.8bn reported at 1H23. FY23 ODI expectations lowered, no change to AMP7 ODI guidance In December, UU experienced a period of extreme weather with some customers experiencing short-term supply interruptions caused by rapid freeze-thaw events, leading to burst pipes. ODI performance for the year will be adversely impacted, and net ODI outperformance for FY23 is now expected to be in the £20m to £25m range. Previous ODI guidance was ‘around £30m’. ODI guidance for AMP7 remains unchanged and UU continues to target a net reward of c.£200m. Strategy update at FY23 on 25th May FY23 results will be presented by incoming CEO Louise Beardmore on 25th May 2023, and will include an update on group strategy.
With the publication this week of the November inflation figures (feeds through to 23/24 revenue and FY24 dividend), we have updated our United Utilities estimates and valuation. In absolute terms little change to our FY23E EPS, but our FY24E moves up by c.9% as markedly higher power costs are more than offset by lower assumed IRE costs and tax. We are aligned with consensus in FY24E. Ofwat’s PR24 final methodology provided an ‘early view’ on PR24 WACC (3.29% CPIH real appointee) based on 1-month trailing data to 30th September, together with a sensitivity of 3.53% based on a 31st October cut-off. We roll forward to a November 30th cut-off, and after applying a 6bp retail margin adjustment, model a PR24 wholesale WACC of 3.21% (appointee 3.27%) in our estimates. Our FY26E EPS shows a c.28% increase vs. our previously published estimates, but there are multiple moving parts, and bill profiling will be a big driver of the earnings evolution from the current regulatory period to the next. Business plans, and ultimately the regulatory models will be crucial in this respect. We will update when data becomes available. We roll our valuation point to FY24E. Our target price moves up to 1,220p (prev. 1,185p), implying a 15% premium to FY24E RCV. A potential 12-month total return of c.23%, we remain BUYERS.
United Utilities reported lower HY22/23 results yoy with EPS above the previous level. To contend with the inflationary environment, UU relies on regulatory mechanisms, effective cost management and hedging strategies to the mitigate rising costs. The short-term outlook seems to be negative but investment to support the environmental targets will enable the company to achieve stronger RAB growth in AMP8.
1H23 results broadly in line UU has reported 1H23 underlying operating profit of £285.5m (down 22.3%, INVe £256m, consensus £258m), underlying EPS of (1.8)p (vs. 28.4p in 1H22, INVe (2.0)p, consensus (1.6)p), and an interim dividend of 15.16p (up 4.6%, INVe 15.16p). Net debt of £7.8bn was in line with our £7.9bn estimate. (See Figure 1 overleaf). Presentation to be held at 9am: http://www.unitedutilitiestv.live/. FY guidance – revenue down, costs up, but largely flagged Revenue is expected to be around 1% lower than 2021/22, largely reflecting lower overall consumption offsetting the uplift from November 2021 CPIH. This is a downgrade vs. the around 1% higher guidance at FY22, but consistent with comments in the 27th September trading statement, which flagged demand reduction. Our pre-existing estimates assume a 1.0% decrease. Underlying operating costs are expected to be £130m higher year-on-year, reflecting inflationary increases and higher power costs, net of efficiencies coming through core costs. Guidance provided at FY22 pointed to an increase of around £100m, although the upwards pressure was flagged in the trading statement. Our pre-existing estimates assume a £125m increase. Underlying finance expense is expected to be £165m higher year-on-year, as higher inflation impacts index-linked debt. At FY22, the guidance was for a £150m increase, but the direction of travel was flagged in the trading statement. Our pre-existing estimates point to a £204m increase, but we note that each 1% on inflation impacts the finance charge by c.£43m. Capex in 2022/23 is expected to be in the range of £660-715m, higher than the £640-690m guidance at FY22. Our pre-existing estimate is for £683m. UU remains confident in targeting a net customer ODI reward of around £30m in 2021/22. No change.
Revenue hit by consumption, operating costs impacted by inflation & power Due to moderately lower than forecast consumption, UU expects 1H23 revenue to be around 1% lower than 1H22. Lower consumption is expected to continue into 2H, and FY revenue is expected to be lower than May’s guidance. Our pre-existing estimates pointed to a 1.1% increase for FY23E. UU previously guided to a c.£100m increase in underlying operating costs for FY23, with around half in relation to previously announced additional investment and half to inflationary cost increases. Inflationary increases on input costs, particularly chemicals and power, are now expected to be somewhat higher than the forecast used to derive this guidance. 1H underlying operating costs are now expected to be £65m higher for 1H23, leading to lower underlying operating profit than in 1H22, with this also expected to impact 2H. Our current FY23E points to a 7.9% drop in operating profit. Net finance expense in 1H23 is expected to be c.£135m higher due to higher inflation on index-linked debt. Directionally, this is something we have captured in our estimates, which sees a £190m jump for FY23E, although UU has not provided guidance. The effective tax rate for 1H23 is expected to be close to nil for both 1H23 and FY23. Net debt is expected to rise vs. end-March, consistent with our view that FY23E net debt will be higher than FY22A. No change in AMP7 guidance, caution on ODIs UU has indicated that guidance on regulatory performance for AMP7 remains unchanged from that given at the FY22 results in May. ODI guidance for the year is maintained, although UU has cautioned that performance against particular measures can be sensitive to weather and one-off events during the year, and particularly during the winter months. In light of the points noted above, we have placed our estimates and TP under review.
UURE sold for c.£100m enterprise value United Utilities announced that it has agreed to sell its non-appointed renewable energy business, United Utilities Renewable Energy Limited ("UURE") to SDCL Energy Efficiency Income Trust plc for a c.£100m enterprise value. United Utilities has developed a portfolio of solar, wind and hydro renewable assets since 2014 and UURE comprises 69 MW of renewable generation assets across 70 sites. Following divestment, these assets will continue to provide long-term green energy to UU’s regulated Water and Wastewater business, United Utilities Water Limited. Completion of the transaction is expected in the coming months, and UU intends to recycle the capital employed in the UURE business back into the next phase of its net zero journey, whilst continuing to source green energy from the existing UURE portfolio. UURE was put up for sale in 2021. We do not expect a material impact from the disposal and leave our estimates unchanged.
There are timing mismatches in the way that inflation impacts water company earnings. In a rising inflation environment, opex and debt costs are impacted before the benefit flows through to revenue. With >50% debt index-linked, this has a material impact on UU. We cut our FY23EPS by c.90% (Figure 1). Ofwat’s PR24 draft methodology is expected in July. It is not clear whether a view on allowed returns will be given, but we note that the PR19 draft methodology presented a view on the cost of equity. We use the CMA’s ruling in the PR19 appeals as the framework for setting an allowed return for PR24. Allowed cost of debt is likely to fall, with older embedded debt rolling off, and newer debt indexed. Reading across from Ofgem’s NGET AIP, which shows a declining cost of debt across the RIIO-2, we assume a 35bp cut in the allowed cost of debt vs. the CMA’s position, pointing to 1.83% CPIH real. Our cost of equity assumption incorporates the CMA’s 25bp aiming up assumption, and uses the 10-year index-linked gilt as a proxy for the risk-free rate. This points to a cost of equity of 5.09% CPIH real, higher than the CMA’s 4.73%, and Ofwat’s PR19 position of 4.19%. Assuming 60% notional gearing and an 8bp retail margin deduction, we assume an allowed return of 3.05% CPIH real, below the CMA’s 3.12%, but above Ofwat’s PR19 position of 2.92%. This is lower than the 3.18% assumed in our previous estimates, and is a contributory factor to our valuation implying a 20% premium to FY23E RCV vs. 26% previously. Driven by inflation, our FY23E RCV is also c.2.6% higher than in our previous estimates. Our target price moves to 1,285p, of which pensions account for 121p. A 10bp reduction in the return would trim this by c.35p.
United Utilities reported FY21/22 results with EPS above consensus and a £50m increment in the ODI guidance but has warned the market that, in FY22/23, it will see significant headwinds from cost pressures and higher financial costs. In addition, the company has announced a further £400m totex overrun in AMP7, which will be partly funded by equity, leading to EPS dilution.
Slight beat in FY22… Underlying operating profit of £610m (INVe £603m, consensus £604m). Underlying EPS 53.8p (INVe 51.3p, cons. 51.8p). Dividend 43.50p (INVe 43.48p, cons. 43.54p). Net debt of £7.6bn was in-line with our estimate of £7.7bn (consensus £7.6bn). >80% of ODI commitments met or exceeded, with net outperformance reward of £25m. UU has delivered RORE of 7.9%, well above the base return of 3.9%, with ODIs, financing performance and tax in positive territory. …but inflation to bite in FY23 Guidance for FY23 is for revenue to be around 1% higher than the £1.86bn reported in FY22. Our pre-existing estimate is £1.88m. Operating costs are expected to be around £100m higher than the £835m reported in FY22 (including IRE costs). We have £899m in our pre-existing estimates (including IRE costs). We suggest that the aggregate of the above could see downward pressure on our pre-existing FY23E underlying operating profit. Underlying finance expense is expected to be £150m higher than the £306m reported in FY22 due to inflation on £4.3bn of index-linked debt. We have £263m in our pre-existing estimates. UU is targeting a net ODI reward of c.£30m in FY23. UU references its CPIH growth policy for AMP7, and for FY23E we have 45.47p in our pre-existing estimates, consistent with the 4.6% CPIH UU has referenced.
Estimates updated further to last Friday’s pre-close trading update and revised inflation assumptions. Earnings are impacted by timing differences between when inflation feeds through to revenues, opex, and index-linked debt costs. EPS rises by 21.6% in FY22E, is cut by 14.6% in FY23E, and cut by 2.0% in FY24E. The dividend benefits from higher inflation, and we estimate a 5-year CAGR of 2.6% through to FY26E vs. 2.4% previously. Inflation benefits nominal RCV growth, we estimate a 2.7% CAGR through to FY26E vs. 2.2% previously. With our WACC nudged up to 3.8% (vs. 3.7%), there is a minor change to our target price which nudges down to 1,290p from 1,300p. This implies a 26% premium to FY23E RCV. United Utilities currently trades at a 14% premium to FY23E RCV, and we see substantial upside. Even if we disregard the c.£1/share that pension assets contribute to our sum-of-the-parts valuation, we suggest that United Utilities offers a potential 12-month total return of c.16%. We remain Buyers. Next event: FY22 results (26th May).
Moving parts, but tax the biggest difference Group revenue is expected to be higher than last year, largely reflecting higher consumption from business customers, with United Utilities suggesting growth of c.3%. This compares to growth of c.2.2% in our pre-existing estimates. Underlying operating profit for 2021/22 is expected to be broadly the same as in 2020/21 as higher revenue is broadly offset by higher underlying operating costs, the latter due to inflationary pressures. Our pre-existing estimates model a £16m YOY decline, the difference vs. UU’s guidance is largely due to revenue as discussed above. UU now expects the underlying net finance expense for 2021/22 to be around £175m higher than 2020/21, largely due to higher inflation applied to the group's index-linked debt. Our pre-existing estimates model a £154m increase, suggesting that guidance on operating profit is offset by that on finance expense. Higher inflation will feed through into revenues in due course (November inflation is used to set bills), and it will increase the year-end RCV. On tax, however, there is a positive impact due to capital allowances, including the temporary super deductions available for the current year, and the expected agreement of prior years' tax matters, with UU expecting an underlying tax credit for 2021/22 of around £60m. This compares to an assumed tax rate of 2% (£6m charge) in our pre-existing estimates. Without guiding towards a specific level, UU expects an increase in group net debt at 31st March 2022 compared with the prior year. Our pre-existing estimates model a c.£0.4bn increase. There is no change in AMP7 guidance on regulatory performance.
1H22 results broadly in line UU has reported 1H22 underlying operating profit of £33m (up 4.3%, INVe £327m, consensus £327m), underlying EPS of 28.4p (up 11.5%, INVe 27p, consensus 26.8p), and an interim dividend of 14.5p (up 0.6%, INVe 14.49p). Net debt of £7.4bn was in line with our £7.5bn estimate. (See Figure 1 overleaf.) Presentation to be held at 9am: http://www.unitedutilitiestv.live/ FY guidance – revenue & costs dialled up Revenue is expected to be around 2 per cent higher than 2020/21, largely reflecting higher overall consumption. This is an upgrade vs. marginally lower at FY. Our pre-existing estimates assume a 1.5% increase. Underlying operating costs are expected to be higher year-on-year, reflecting inflationary increases net of efficiencies coming through core costs, and IRE is expected to increase due to investment in DNM. This points to higher costs than previously guided, where UU had pointed to a marginal increase. UU has expressed confidence that it can deliver its AMP7 scope within its Final Determination totex allowance. Our estimates assume a 4.7% increase. Underlying finance expense is expected to be higher year-on-year as higher inflation impacts index-linked debt. No change Capex in 2021/22 is expected to be in the range of £625-675m. No change. UU remains confident in targeting a net customer ODI reward of around £20m in 2021/22. No change.
UU's recent ESG presentation highlighted how AMP7 delivery drives preparation for AMP8, the need for resilience investment and a net zero by 2030 commitment. Consequently, we are cognisant of the potential upside to our c.£1bn (2017/18 prices) assumed annual totex allowance in AMP8 (& beyond) as a consequence of net zero, resource, biodiversity, and sustainability needs. PR24 is just around the corner, and we would not be surprised to see the industry seek totex levels above those we currently factor in. A housekeeping exercise on our estimates sees our FY22E operating profit estimate nudge up further (Figure 7), with UU flagging higher revenues in its recent trading statement, albeit partly offset by inflationary pressure on opex. Higher inflation also impacts the cost of index-linked debt, reducing our EPS estimate slightly for FY22E. There is negligible change to our estimates in the outer years. Our target price increases marginally to 1,265p (vs. 1,260p), with the regulated activities valued at a 31% premium to FY22E RCV (Figure 9). Our target price includes c.100p for the pension surplus on an IFRS basis, which even if disregarded still points to c.18% upside from current levels. UU remains our preferred water stock and we reiterate our Buy recommendation. UU is set to publish its 1H22 results on 24th November, and we set out our expectations in Figure 8. We look for an increase in underlying operating profit of c.2% reflecting the revenue increase flagged in the trading statement, partly offset by the aforementioned inflationary pressure on costs.
Revenue & operating profit up Net revenue in 1H22 is expected to be higher than last year, up c.4%. This is above the 0.6% reduction our estimates suggest for the full-year. Underlying operating profit for 1H22 is expected to be higher than last year due to both the revenue increase and efficiencies, only partly offset by inflationary pressures on costs. Our current FY22E estimates point to a 6.8% drop in operating profit. Net finance expense in 1H22 is expected to be c.£25m higher due to higher inflation on index-linked debt, and again directionally, this is something we have captured in our estimates, which see an £80m jump for the full-year. The effective tax rate for 1H22 is expected to be around 5%, although a deferred tax charge of c.£380m is expected in 1H22. Net debt is expected to rise slightly vs. end-March, consistent with our view that FY22E net debt will be higher than FY21A. No change in AMP7 guidance UU has indicated that guidance on regulatory performance for AMP7 remains unchanged from that given at the FY21 results in May. Overall, current trading is in line with management expectations, but in light of the points noted above, we have placed our estimates under review.
High level picture unchanged UU’s trading statement issued this morning indicates a performance for FY21 in line with management expectations. The ODI reward of up to £20m was already disclosed at the recent capital markets event. Previously issued guidance was for a volume/Covid impact of £10-60m, with revenue guidance of £1.75-1.8bn. UU is now pointing to a c.3% reduction in revenue, suggesting that revenue will outturn above at the upper end of the range, and above our £1.7bn. Lower revenues and higher IRE costs point to lower underlying operating profit, and our estimates point to a 9.8% drop. No indication has been given as to the magnitude of the equity accounted loss at Water Plus, UU’s business retail JV with Severn Trent. UU has indicated that it will be amending its approach to alternative performance measures at year-end, notably in respect of underlying earnings. We are speaking to the company later, and will discuss the changes. These changes do not impact cash flow. UU has pointed to a small increase in net debt vs. the September ‘20 position of £7.4bn. Our year-end forecast of £7.5bn is consistent with this direction, but does not include the €100m proceeds from the sale of UU’s 35.3% in Tallin Water.
United Utilities posted its H1 20/21 (closing in March) result with revenues down by 4.3% due to the new pricing regime and the pandemic, with an underlying operating profit decline (-18%). Net profit, however, was supported by lower net financial expenses and the underlying movement in the share of joint-ventures. For FY 20/21, the company expects revenue to be £1.75-1.8bn vs £1.86bn recorded last year. Additionally, it expects an ODI reward of around £10m.
Financials in line Net revenue in 1H21 is expected to be lower than last year, down c.5%. This is slightly more positive than the 8% reduction our estimates suggest for the full year. Underlying operating profit for 1H21 is expected to be lower than last year due to both the revenue reduction, and a higher infrastructure renewals expense, the latter also being the case in our estimates. Net finance expense in 1H21 is expected to be c.£30m lower due to lower inflation on index-linked debt, and again directionally, this is something we have captured in our estimates. Net debt is expected to rise slightly vs. end March, consistent with our view that FY21E net debt will be higher than FY20A net debt. UU has expressed confidence in the adequacy of the bad debt provision made at FY20. Operationally on track UU has indicated that operational performance in the first half of the year is on track against its AMP7 plan, and that it continues to target net outcome delivery incentive (ODI) outperformance for the full year 2020/21. The capital expenditure profile for AMP7 has been accelerated vs. the assumed profile in the final determination, suggesting that we could see benefits delivered earlier than would otherwise be the case.
Estimates updated post FY20. UU has not estimated the impact on turnover from Covid-19, but extrapolating Severn Trent guidance, we have incorporated a £80m hit in FY21E, recoverable in FY23E. Our FY21E EPS falls by 11.4%, but FY23E rises by 21%, with FY22E broadly unchanged (see Figure 2 overleaf). Lower-than-expected inflation due to Covid-19 is seen as a risk, and one of the principal factors behind UU’s decision to review its AMP7 dividend policy, most likely at the FY21 stage. At this stage, UU is of the view that it is merely being prudent, with a wide range of forecasts in the market for inflation. Bloomberg has 49 estimates for 2020 with a -0.1% to +1.7% range, and 48 for 2021 with a 0.2% to 2.5% range. Our estimates are based on 1.1% for FY 3/21E and 2.0% for FY 3/22E. Despite some mitigation from c55% of UU’s debt being index-linked, prolonged low inflation would have a negative impact. Our sum-of-the-parts valuation trickles down by c1%, and we move our target price to 1,020p from 1,030p (see Figure 1 overleaf). UU’s FY20 presentation alluded to AMP7 investment being off to a flying start, opportunities to outperform on bespoke ODIs, and being well positioned for the future on financing outperformance. These are factors which underpin our positive stance on UU, a stance which we reiterate on the assumption that there will not be a prolonged period of low inflation/deflation.
United Utilities reported FY19/20 results with underlying figures in line with our assumptions but the reported figures much lower due to one-offs. It exited the 2015-20 regulated period with totex outperformance of £100m and ODI outperformance of £44m. The company will pay its FY19/20 dividends but is reviewing the dividend payment for AMP7. We will be adjusting our model to account for AMP7.
FY20 in line with expectations UU reported FY20 this morning. Underlying operating profit of £744m (INVe £739m, cons £738m), underlying EPS 63p (INVe 63.2p, cons 62.9p) & net debt of £7.361bn (INVe £7.352bn, cons £7.298bn). The dividend of 42.6p is in line with our estimate. £56m of Covid-19 costs As with Severn Trent, UU has written down its share of the Water Plus JV to nil, and reflected Covid-19 losses in FY20 for this business. At a group level, £56m of Covid-19 costs have been taken in FY20, of which £37m relate to Water Plus, £18m relate to a higher risk of non-payment of household bills, and £1m relates to operating expenses. These have all been treated as adjusted items by UU. Words of caution regarding the dividend policy for AMP7 UU has issued words of caution as far the outlook is concerned, stating that “It is, however, too early to predict the full impact of COVID-19 on inflation, the economy more generally and on our business, and we will review our dividend policy for AMP7 as a clearer picture of the post COVID-19 economic environment emerges”. The policy is currently CPIH growth through AMP7 to 2025. We have previously stressed that legitimacy is all important for businesses that sit astride the private/public divide, and we suggest that given the many unknowns as to the shape and pace of the economic rebound, allied with the possibility of more regulatory levers being pulled, that UU has used an appropriate form of words. Nonetheless, it serves to highlight that there are risks for stocks considered to be ‘safe havens’.
FY20 trading in line UU has released a trading update ahead of its FY results on 22 May. Current trading is line with group expectations for FY20. Underlying operating profit is expected to higher than in FY19 (we have a 6.8% increase), net debt is expected to be flat vs. the Sep-19 position (in line with our expectations), but higher inflation will push the cost of RPI-linked debt, with underlying net finance expense c.£15m higher than in 2018/19, albeit not out of kilter with an £11m increase posted in 1H20. Increased credit spreads will significantly increase the IFRS pension surplus. Accelerated depreciation of £80m on bioresources to be booked, but excluded from underlying profit measures. Storms hit ODI expectations by £10m No material incremental costs are expected from the winter storms, but service interruptions will impact ODIs, and UU now expects an AMP6 ODI net reward of £40m, vs. a previous expectation of £50m. In theory regulation offers volume protection, but these are unprecedented times – we cannot rule out impact The economic situation is impacting the recovery plan at UU’s Water Plus JV with Severn Trent, as the ability of business customers to pay has been affected, and the recovery plan will be ‘far more challenging, take longer, and be less certain’. This suggests downwards pressure at the income from JV line over the next few years. We also question whether there will be pressure on wholesale revenue recovery from the business segment, which amounts to £45m/month for UU. Although volumes are subject to a true-up mechanism two years later, these are unprecedented times, and it might not be as simple as applying the current mechanisms. Ofwat/MOSL have mentioned ‘pain sharing’, and should there be widespread insolvencies, pursuing those who cannot pay might not be an appropriate course of action, and maybe consideration should be given to volume voiding, with some kind of mutualisation of the impact across the industry with perhaps a longer-tailed recovery of the volume impact. The legitimacy of water companies and the regulation will be tested like never before. Such a scenario would see a near-term P&L impact, with a positive boost in future years. UU has indicated that it has a robust liquidity profile extending out 24 months.
UU’s Capital Markets Day did not provide guidance on possible outperformance in AMP7, nor is such guidance likely at FY20 results in May. However, UU is already implementing plans for AMP7, and there was a level of confidence expressed by management that the company is positioned to deliver against totex allowances, ODIs, and financing. The totex run rate exiting AMP6 is at AMP7 allowed levels, which leads us to believe that UU’s comments around efficiencies should translate into AMP7 totex outperformance (Figure 1), something we view as supportive of our 5% outperformance assumption. Common ODIs are a stretch (Figure 2), but UU is looking well positioned on the newly introduced C-MeX (Figure 3) measure, while bespoke ODIs have a slight positive skew (Figure 4). Our £25m ODI revenue assumption over AMP7 might prove to be conservative. Positive message on financing. Our assumptions assume a 20bps halo effect on new funding, but UU has alluded to typical outperformance levels of 50-100bp on new debt (Figure 5). Raising our halo effect assumption for AMP7 to 75bps would add 9p/share to our valuation. Minor tweaks to our estimates reflect updated inflation numbers, and the recently announced AMP7 dividend policy, but our target price is unchanged at 1,035p. We view UU as a defensive name in these uncertain times, but one which appears well positioned to deliver in the next regulatory period. We reiterate our Buy rating.
UU accepts AMP7 package UU has accepted Ofwat’s PR19 Final Determination package for AMP7. As a fast tracked company, acceptance is in line with our expectations. Guidance on credit ratings given UU intends to maintain the credit rating for United Utilities Water at/above A3 (Moody’s) and BBB+ (S&P). Current ratings are A3 stable (Moody’s), A- negative outlook (S&P), and UU expects an announcement from S&P next month. AMP7 dividend policy of CPIH growth, and no cut – POSITIVE UU has indicated that in line with its AMP6 dividend policy of RPI growth, the dividend for 2019/20 is expected to be 42.6p (vs our estimate of 42.52p), with a target of CPIH growth across AMP7, and no cut on entering AMP7. A key element to our positive view on UU was our stance that the dividend would not be cut going into AMP7, albeit that we assumed a flat dividend in 2020/21E, with CPIH growth thereafter. This positioned us ahead of consensus, which prior to this announcement forecast a cut to 41.39p in 2020/21. If the 2020/21 dividend is set using November 2019 CPIH of 1.5%, then the expected 2020/21 dividend will be 43.24p, suggesting that both we and consensus will need to nudge dividend forecasts upwards. We view the dividend announcement as a positive. Conference call at 14:00 A conference call will be held at 14:00 GMT, and can be accessed via +44 20 3936 2999, code: 306115.
United Utilities posted a satisfactory H1 19/20 (closing in March), with solid underlying operating profit growth (+6.5%). The company has been continuously improving operationally, earning top marks from the regulator and making it eligible to receive regulatory incentives, which UU estimates will reach £50m over the 2015-20 period.
1H results were in line with expectations with underlying operating profit up 6.5% at £392m (INVe £386m, consensus £388m) and underlying EPS of 29.1p up 0.7% (INVe 29.4p, consensus 28.9p). The interim dividend of 14.2p is in line with UU’s dividend policy (INVe 14.16p), while net debt of £7.3bn was in line with our estimate. The pending PR19 final determinations for AMP7, expected on 16th December, are arguably the most important issue facing UU, and we are of the opinion that the messaging had a slightly more positive tone on ODIs (Figures 2-3 overleaf) and totex (Figures 6-7), supported by a reiteration of the ‘flying start’ narrative (Figures 4-5). Our valuation is based on an 11% premium to FY21E RCV, supported by our analysis which has UU outperforming on financing and totex in AMP7, but we do not assume any ODI outperformance. The latter represents an additional source of value if the progress can be sustained, and the regulatory settlement is not overly penal. UU’s IFRS pension surplus has moved up to a £699m surplus at 1H20 versus £484m at FY19. The final acceleration of deficit payments accounts for £103m of the difference, but the net shift is worth c.16p on our SOTP (we use a full IFRS approach, see Figure 8), and something we will consider when updating numbers post final determinations. We model a 5% nominal WACC in our AMP7 estimates, and understand that UU’s board will meet in January to discuss Ofwat’s package. The dividend policy (we assume no cut in FY21E) and a capital markets day are set to follow the board decision.
UU provided concise 1H20 guidance in its 25th September trading update, pointing to higher underlying operating profit, a loss at the JV line, higher financial expenses, and debt up by c.£250m vs. FY19 levels. Our £386m estimate for underlying operating profit (+4.9% vs. 1H19), underlying EPS of 29.37p (+1.6%), and net debt of £7.3bn reflect these trends. Our 14.16p estimate for the interim DPS reflects UU’s dividend policy of at least RPI growth. The upcoming PR19 final determination on 16th December is arguably the most important issue facing UU, and it is unclear what the company can or is willing to say ahead of the announcement. That said, we expect that management will highlight the ability to outperform on finance costs, the relatively small difference between Ofwat’s summer 2019 view of AMP7 capex vs. UU’s business plan, the benefits of UU’s approach to systems thinking, and the relative strength of the pension position vs. the peer group. A view on possible ODI performance in AMP7 might not be forthcoming. A webcast presentation will be held at 9am the same day, and slides will be available from that time (link). We model a 5% nominal WACC in our AMP7 estimates, vs. Ofwat’s 5.14% in July’s draft determinations; on our estimates, UU is currently trading at a 6% premium to FY21E RCV, vs. an 11% premium in our valuation. We see upside in the stock which should be released by the clarity that we expect to ensue following the election and final determination. Buy.
United Utilities posted a positive set of results for its FY18/19 closing in March. UU delivered in revenues and underlying EBIT and surprised on underlying net profit, which came in 6% above consensus estimates, and reported net profit +6% above our own estimates. After achieving ‘fast-track’ status from the regulator for its 2020-25 business plan, UU is now ready to ramp up investments in preparation for AMP7, the next regulatory period.
United Utilities released its H1 18/19 results for the fiscal year ending next March. Revenues reached £916.4m (+4.6%), reported operating profit £339.1m (-0.8%), underlying operating profit £367.8m (+6.9%), underlying net profit £196.9m (+22.9%) and net reported £212.5m (+7.6%). At 30 September 2018, RCV gearing stood at 60%, in line with last year’s (61%) and within the guided 55-65% range, and the RCV stood at £11.5bn (£11.2bn last year). Net debt (including derivatives) stood at £6,914m, (vs £6,868m a year ago) on regulatory capex, payments of dividends, interest and tax, the inflationary uplift on index-linked debt. The interim dividend will be 13.76p (vs 13.24p).
UU released and briefly commented yesterday on its PR19 business plan covering the 2020-25 period, which will be further detailed on 27 September at an analysts meeting/conference.
United Utilities have released their FY17/18 results (closing March). Revenues reached £1,735.8m (+1.9%), reported operating profit £636.4m (+5.1%), underlying operating profit £645.1m (+3.6%), underlying net profit £304.9m (-2.7%) and net reported £354.6m (-18.2%). The dividend proposed for FY17/18 will be 39.73p (+2.2%). At 31 March 2017, RCV gearing stood at 61% in line with last year and within the guided 55%-65% range, and the RCV stood at £11,2bn (£10.7bn last year). Net debt (including derivatives) stood at £6,868 (vs £6,579m a year ago) on regulatory capex, payments of dividends, interest and tax, the inflationary uplift on index-linked debt and loans to joint ventures.
United Utilities reported a solid set of first half results. Key highlights Revenue up 2.7%, at £876m Underlying operating profit up 10%, at £344m Underlying net profit up 5.7% at £160.1m RCV gearing in line at 61% Interim dividend up 2.2%, at 13.24p Management confirmed the ODI’s outcome guidance for the current regulatory period of between a £30m reward and a £50m penalty.
The company released a set of full year results broadly in line with expectations. Key highlights Group revenue down £26m, to £1,704m (consensus: £1,715m) Operating profit up £38m, to £605.5m (Consensus: £610.5m) Adj. EPS £0.46, in line Total dividend of 38.87 pence, in line £692m net capex Other developments ODIs led to a £6.7m net reward during the year, bringing a cumulative £9.2m reward over the past two years. Management now expects net ODI outcome over the 2015-20 period to range between £-50m and £+30m (vs £-70m to £+30m previously). Management also announced an extra £100m investment to improve the networks’ resilience, notably in the Water business. At 31 March 2017, RCV gearing stood at 61% in line with last year and within the guided 55%-65% range, and the RCV stood at £10,719m. Net debt (including derivatives) stood at £6,759m, up from £6,261m at 31 March 2016 on accelerated capex, higher dividends, cash interest expenses and taxes.
United Utilities reported its first half results and confirmed its guidance. Revenue reached £853m, down £4m yoy, reflecting the accounting impact of the Water Plus JV with Severn Trent completed on 1 June 2016. EBIT was up 9%, at £303.6m, while PBT was down £57.2m at £158.4m and net profit up by £30.7m, to £202.6m. The company said it had invested £383m in the first half and remains on track to invest around £800m for the full year. The company did not give any update regarding Outcome Delivery Incentives and said it will provide the net rewards/penalty quantification in May 2017 for the full-year results while confirming the validity of previous 2020 guidance. At 30 September, RCV remained within the group’s target of between 55% and 65%, at £10.5bn, while RCV gearing increased from 59% to 62% mostly reflecting the change in net debt. The board has declared an interim dividend of 12.95p per ordinary share, an increase of 1.1%, in line with the policy of targeting an annual growth rate of at least RPI through to 2020.
The clearance from the Competition and Markets Authority of the joint venture between UU and Severn Trent announced on 01/03/2016 (please see our 01/03/2016 Latest) to combine their non-household retail businesses is expected later this spring. This trading information seems to anticipate better results than previously expected, although the notion of ”underlying costs and profit” always alters clarity.
UU and Severn Trent announced this morning the creation of a JV to combine their non-household retail businesses, subject to regulatory approvals. On the basis of the FY 03/15 accounts, the JV would see (before synergies) sales of £940.2m, gross assets of £200.0m and PBT £9.7m (1.03% of sales). The JV would have a 25% market share including Scotland. A long conference call was held this morning with the participation of prestigious investment banks. Of course, the main questions were on synergies, margins and the next steps (toward more ventures), if any.
FY 03/16 is the first year of the regulatory period. H1 03/16 is globally in line with expectations: Revenue: -£2.4m (to £857m) Underlying EBIT -£35m (to £309m) Underlying net finance expense -£18m (to -£106m) Underlying PBT was £205m, -£16m Underlying profit after tax £163m, -£12m Underlying EPS increased from 24.7p to 25.8p The interim DPS declared of 12.81p (+2%) is in line with the group’s dividend policy of now targeting growth of at least RPI each year (vs RPI+2% during the preceding regulatory period.
