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.
