Interactive Investor

ii view: United Utilities talks through its own forecasts

25th March 2021 15:16

Keith Bowman from interactive investor

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Covid-19 has impacted but shares of this water company still sit on a 4%-plus historic dividend yield.  

Full-year trading update to 31 March

  • Expects revenue to be around 3% lower year-over-year
  • Expects lower underlying operating profit

ii round-up:

North West water company United Utilities (LSE:UU.) today detailed in-line expectations for the full year to the end of March. 

Lower industrial water consumption at the height of pandemic lockdowns, partly countered by higher domestic use, is expected to feed into a 3% fall in overall revenues. The decline, and taken alongside higher infrastructure renewal expenditure, is expected to result in lower annual adjusted operating profit.

United shares were little changed in UK trading, leaving them up by more than 9% over the last year. that's similar to water rival Severn Trent (LSE:SVT). Water companies, unlike many other corporations during the pandemic, have continued to pay their dividends. 

Strong operational performance, including low leakages and interruptions to supply, should also result in a reward of up to £20 million in ODI (outcome delivery incentive) payments this year. ODI's are paid to water companies by the regulator for meeting or exceeding performance targets.

Investment in its asset base is expected to result in a small rise in group net debt, although lower inflation applied to its index-linked debt will reduce its adjusted net finance expenses by around £100 million. Credit rating agency Moody’s currently gives United an A3 rating. 

Full-year results are scheduled for 27 May.

ii view:

United Utilities delivers essential water and wastewater services for household and business customers across the North West 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 the climate change front, the company also has six carbon pledges, including a commitment to adopting science-based targets, and driving the sector's commitment to hit net zero by 2030. 

For investors, tougher regulatory pricing policies remain an ongoing concern, while the pandemic has shown that consumption can be influenced, even if it is a once in a lifetime event. But despite some impact in reducing revenues, the latest regulatory pricing regime has only just begun. Initial high uncertainties from the pandemic have eased, with strengthened management confidence in the inflation outlook allowing it to reaffirm its previously detailed dividend policy. In all, and sat on a historic and projected dividend yield of over 4%, United continues to warrant its place in many diversified income focused long term portfolios. 

Positives: 

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

Negatives:

  • Ongoing Covid-19 uncertainty
  • Subject to regulatory changes

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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