ii view: United Utilities gets political

The dividend payment remains attractive at United, but investors anticipate a change of government. 

Trading update ahead of half-year results

• No change to prior guidance
• Revenue expected to be higher than H1 last year
• Underlying operating profit expected to be up on H1 last year
• £350 million of additional investment

ii round-up:

Headquartered in Warrington, United Utilities (LSE:UU.) supplies water to approximately 3 million homes and 200,000 businesses across the North West of England. 

The utility company which supplies both Manchester and Liverpool reported trading in line with management's prior expectations. 

Both revenues and underlying operating profit are expected to be higher compared to the first half of last year, given both allowed regulatory price increases and lower infrastructure expenditure renewals. 

A total of £350 million, allowable given its anticipated outperformance of the regulator's current five-year requirements (AMP6), is being shared with customers through additional investment. 

Net finance expenditure is expected to rise by £10 million following increases in RPI inflation and its impact on group index-linked debt, while company gearing is forecast to remain comfortably within management's target range. 

The board remains confidence as its heads towards the next regulatory period (AMP7).

The share price was little changed in early UK market trading. 

ii view:

Water companies are generally considered by investors to be defensive in nature. Demand for water changes little no matter what the economic backdrop. Furthermore, reliable customer income also makes for dependable dividends. 

A current historical and forward dividend yield of just over 5% (not guaranteed) provides the major attraction for investors in this era of ultra-low interest rates. 

But risks have clearly risen for investors. The possibility of a Labour government and its potential policy to bring utility companies back under government control – and at an unknown price – now needs to be considered.    

Positives: 

• Holds an A3 Moody's credit rating
• Attractive dividend payment

Negatives:

• Dry weather can create challenges and additional costs
• Politics and a possible change of government is creating uncertainty

The average rating of stock market analysts:

Hold