ii view: income play United Utilities busy investing £13bn

First-half results to 30 September

• Revenue up 21% to £1.31 billion
• Adjusted earnings up 97% to 52.8p per share
• Interim dividend up 3.5% to 17.88p per share
• Net debt up 6% to £9.61 billion

Guidance:

• Now expects full year adjusted earnings of around 100p per share

Chief Executive Officer Louise Beardmore said:

"We have achieved strong operational and financial performance in the first half of 2026, delivering for customers, communities, and the environment.”

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ii round-up:

United Utilities Group Class A (LSE:UU.) today reported earnings that marginally beat City forecasts, with the North West water company progressing a £13 billion five-year investment programme to upgrade infrastructure and improve environmental performance.

First-half revenues up by a fifth to £1.31 billion helped adjusted earnings almost double to 52.8p per share. Analysts had forecast an outcome of 51.1p per share. An interim dividend of 17.88p per share, and payable to eligible shareholders on 2 February, is up from last year’s 17.28p. 

Shares in the FTSE 100 company remained little changed in UK trading having come into these latest results up by around 14% so far in 2025. The FTSE 100 index is up by close to a fifth year-to-date and fellow water companies Severn Trent (LSE:SVT) and Pennon Group (LSE:PNN) are each up by close to a tenth this year. 

Investment of £13 billion up to 2030 will include a new aqueduct to safeguard water supplies for over two million customers across Manchester.

Other investment focus includes changes for storm overflows, which are sewer mechanisms made to release excess rainwater and sewage into the environment during heavy rainfall to prevent flooding. Such spills are down 40% year-to-date with United working to cut them by 60% over the decade to 2030.

The Warrington headquartered company now expects adjusted earnings of 100p per share for the full year to late March. That’s a potential doubling from last year’s 49.6p per share although analysts already forecast such an outcome. 

Group net debt rose 6% from a year ago to £9.61 billion and includes £4.7 billion of index-linked debt. Adjusted financing costs for the current full year are expected to rise by around £50 million year over year and is due to raised debt needed to fund the major investment programme.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results. A third-quarter trading update is likely to be announced late January.  

ii view:

United Utilities operates thousands of kilometres of water pipes and sewers from Carlisle in north Cumbria to Crewe in south Cheshire. Employing over 6,000 people, it supplies more than 7 million people. Water companies are subject to five-year price controls, most recently covering April 2025 to 2030 or AMP8. These price controls are set by OFWAT, the regulator. 

For investors, the water industry’s accountability and impact on the environment cannot be forgotten. Regular negotiations with the industry regulator are a fact of life. Adjustments to taxes and capital allowances can impact, with a UK Budget pending. Elevated costs including those for inflation-linked debt can impact, while the weather given events such as droughts, pipe freezes, and heavy rain can influence performance. 

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To the upside, demand for water generally changes little no matter what the economic backdrop. A major investment plan over AMP8 is expected to improve environmental performance, reducing possible penalties applied by the regulator. Ongoing focus on costs has seen flat operating costs over this latest period, while its regulatory links to inflation for items such as bills and revenues also include its dividend payment.

For now, and while possible changes under the still relatively new government offer caution, a forecast dividend yield of around 4.5% is likely to keep income investors happy. 

Positives: 

• Monopoly supplier
• Attractive dividend payment (not guaranteed)

Negatives:

• The weather can influence performance
• Subject to regulatory changes

The average rating of stock market analysts:

Buy