ii view: why United Utilities wants £1bn of extra investment

First-half trading update to 30 September

ii round-up:

United Utilities Group  Class A (LSE:UU.) today flagged first-half trading in line with expectations, with regulatory negotiations for an additional £1 billion of investment to support improved network resilience and new capacity ongoing.

The North West water provider continues to target regulatory returns of 10-11% during the five-year regulatory period to 2030, with operational performance matching expectations. First-half results are scheduled for 12 November, with a final regulator decision regarding extra investment due in December.

Shares in the FTSE 100 company rose 1% in UK trading having come into this latest news up by close to a fifth so far in 2026. The FTSE 100 index is up 7% during that time. South West water provider Pennon Group (LSE:PNN) has fallen 15% 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.

The group remains on track to make £2 billion of capital investments during the current 2026/27 financial year, contributing towards £11.5 billion of investments over this regulatory period known as AMP8.

Investments to 2030 are expected to include a new aqueduct to safeguard water supplies for over two million customers across Manchester.

The back and forth with the regulator now sees United proposing additional investment of £1.026 billion, below its original proposal of £1.068 billion and nearer the regulator’s initial £958 million draft plan.  

ii view:

Warrington headquartered United Utilities operates thousands of kilometres of water pipes and sewers. Greater Manchester provides its biggest supply population at 38%, followed by Merseyside at 21%, Lancashire 20%, Cheshire 14% and Cumbria 7%. Wholesale wastewater charges generated most revenues during its last financial year at 52%, with wholesale water supply at 41% and household retail charges most of the 7% balance.

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 impact business, with the UK Autumn Budget pending. Costs, including those for inflation-linked debt and energy, can impact, while the weather and events such as droughts, frozen pipes and heavy rain can all influence performance.

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On the upside, demand for water generally changes little no matter what the economic backdrop. Group measures to hedge against possible rising energy costs have previously been flagged. Investments over AMP8 are expected to improve environmental performance, reducing possible penalties applied by the regulator going forward, while regulatory links to inflation for items such as bills and revenue also include the company’s dividend payment.

For now, and despite ongoing risks, a reliable business with a prospective dividend yield of around 4% will likely 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