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.