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).
