ii view: United Utilities sticks with profit forecast

Full-year trading update

ii round-up:

North West water company United Utilities Group Class A (LSE:UU.) today detailed trading for the full year to late March in line with management’s previous expectations. 

It continues to forecast adjusted earnings for the current 2025/2026 financial year of around 100p per share, although an accounting change in relation to its inflation-linked debt now nudging earnings up to 105p a share. That compares with last year's 49.6p per share. 

Shares in the FTSE 100 company rose 2% in UK trading having come into this latest news up by around 5% so far in 2026. That’s similar to rival Severn Trent (LSE:SVT) and in contrast to a 4% decline at South West water owner Pennon Group (LSE:PNN). The FTSE 100 index is up just 1% year-to-date. 

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United delivers around 1.8 billion litres of water a day to more than three million homes and businesses. 

A change in the estimation technique used to measure inflation‑linked debt is expected to help smooth earnings through the highs and lows of inflation, leading to a £35 million reduction in debt, or finance costs over the current financial year.

Elsewhere, and against the backdrop of a war in the Middle East and soaring energy prices, United also flagged its current energy hedging policies, measures which see costs hedged through this summer and largely for winter too. 

Measures introduced by the regulator for the current five-year regulatory AMP8 period to 2030, also provide some protection against volatile commodity prices.   

Full-year results are scheduled for 14 May.   

ii view:

The Warrington headquartered company operates thousands of kilometres of water pipes and sewers from Carlisle in north Cumbria to Crewe in south Cheshire. Under the AMP8 regulatory period, United is investing £13 billion to upgrade infrastructure and improve environmental performance. Investments to 2030 will include a new aqueduct to safeguard water supplies for over two million customers across Manchester.

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. Government changes to taxes and capital allowances can have an impact. So can costs including those for inflation-linked debt and energy, while the weather and events such as droughts, frozen pipes and heavy rain can all influence performance. 

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More favourably, demand for water generally changes little no matter what the economic backdrop. Measures to hedge against possible rising energy costs are now coming into play. Investments during AMP8 are expected to improve environmental performance, reducing possible penalties applied by the regulator, while regulatory links to inflation for items such as bills and revenues also include the company’s dividend payment.

On balance, and while risks remain, a forecast dividend yield of around 4.3% should keep income investors interested. 

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:

Strong hold