ii view: business consumption growing at United Utilities

Expecting higher revenues and profit and a dividend yield of over 4%. We assess prospects.

First-half trading update to 30 September 2021

ii round-up:

Northwest water company United Utilities (LSE:UU.) today flagged a rise in both first-half revenue and operating profit as business consumption rose following last year's pandemic enforced closures. 

Overall trading to the end of September was in line with management expectations, with revenue for the period expected to be up around 4% year-over-year.

United Utilities shares were little changed in UK trading, having risen by nearly a third since pandemic market lows  in March 2020. Shares for fellow water company Severn Trent (LSE:SVT) are up by a similar amount. 

Household consumption has stayed high as many customers continued to work from home. Targeted efficiencies across the business have been partly offset by higher underlying operating costs, largely as a result of inflationary increases in core costs.

Group net debt is expected to have risen marginally from its position at 31 March, largely due to ongoing asset investment and an acceleration of capital expenditure to deliver service improvements sooner.

In late May, United declared a final dividend of 28.83p per share, bringing the total payment for its previous financial year to 43.24p per share. That was an increase of 1.5% over the prior year’s 42.6p per share and in line with its latest regulatory dividend policy up to 2025.

First-half results are scheduled for 24 November.

ii view:

United delivers essential water and wastewater services for household and business customers across the Northwest of England. It maintains and operates thousands of kilometres of pipes and hundreds of treatment works, as well as renewable energy facilities that use its land and bioresources from wastewater treatment to generate clean electricity to help power its operations.

Like the modern world, a growing use of technology has been recently underlined. Sensors are now used in its pipe network to spot potential leaks early and deal with them. On climate change, the company has committed to adopting science-based targets including driving the sector's commitment to hit net zero by 2030. 

For investors, tougher regulatory pricing policies remain an ongoing concern. The pandemic has also shown that other factors outside of the weather and rainfall can influence performance. But despite some regulatory impact in reducing revenues, the latest regulatory pricing regime is still relatively young. Initial high uncertainties from the pandemic have eased, with water companies playing an increasingly important role between the use of water and the environment. In all, and with United shares sat on a historic and estimated dividend yield of over 4%, the water company’s ongoing appeal to income seekers remains undiminished. 

Positives: 

• Attractive dividend payment (not guaranteed)
• Holds an A3 stable credit rating with Moody’s

Negatives:

• The weather can influence performance
• Subject to regulatory changes

The average rating of stock market analysts:

Weak hold