The IC has a full page article on Pennon this week. It notes how Pennon is at five year lows and this is partly down to the negative sentiment around the next five year review and the possibility of a Labour govt.
However it sees bull points in the renegotiating of the Viridor deal with GMC and the fact that South west Water is usually the most efficient out of all water firms.
I am tempted to increase my holding which has only risen slowly in line with dividends reinvested.
So less profit for the water companies!! and less dividends for the shareholders!!
As always DYOR
DELIVERING A DECADE OF LOWER BILLS AND BETTER SERVICE FOR WATER CUSTOMERS
13 December 2017
Water customers across England and Wales can look forward to lower bills, improved services, reduced leakage and more help for the most vulnerable in our communities, economic regulator Ofwat has today announced.
Publishing the final methodology for its forthcoming price review, which will set limits on the prices that customers will pay for water between 2020 and 2025, the regulator has challenged water companies to deliver more of what matters to customers in the coming decade, by being ever more resilient, efficient and innovative in the services they provide.
As part of the methodology, Ofwat has also published an initial view of the cost of capital - based on market evidence - of 2.4% (in RPI terms), which would be a record low for a regulated utility. Ofwat estimates that this reduced cost of capital could result in an average saving per customer of £15-£25 a year from 2020 onwards.
Ofwat is challenging water companies to go the extra mile in terms of the services they provide to their customers in the years ahead. Help for vulnerable customers will, for the first time, be an explicit part of a price review and water companies will be required to devise and deliver plans to identify and help customers in vulnerable circumstances; Ofwat will report publicly on these plans.
Ofwat is also challenging water companies to improve the resilience of their services. Companies need to plan long term and develop smart solutions to address the pressures of a growing population and climate change. This starts with addressing leakage. Companies are being asked to stretch themselves further than ever before to save 170 billion litres of water a year; enough to meet the yearly needs of 3.1 million people.
Water companies must submit to Ofwat by September 2018, a business plan outlining in detail how they will deliver on these challenges.
Ofwat Chief Executive, Cathryn Ross said:
"Today, we unveil our blueprint for how we will push water companies to deliver more for customers through to 2025. The next decade will see profound changes in customers' expectations and we are pushing the water sector to be at the very forefront of that. The methodology we've published today outlines how we will use our price review to get the very best for customers, through higher quality of service and support for those who need it most, all with scope for lower bills. We've said many times already that this will be a tough price review for companies. We will cut the financing costs they can recover from customers and, with this lower guaranteed return, they will need to more efficient and innovative than ever before. I've no doubt that the sector can step up and meet the challenges we've laid before them today".
"LONDON (Alliance News) - UK water regulator Ofwat on Tuesday said it is consulting on proposals to impose a penalty on Pennon Group PLC's South West Water unit for failing to adequately deal with pollution problems, while rewarding Severn Trent PLC for its work to reduce sewer flooding.
Ofwat is starting to consult on proposals to adjust the price controls for three of the eighteen water companies in England and Wales, to be applied from April of next year. The three firms are South West Water, Severn Trent Water and Anglian Water.
All water companies have committed to improve their performance for 2015 to 2020 based on customer consultation. Companies that underperform incur penalties - such as Thames Water's GBP8.6 million penalty for failing to meet its leakage commitment - while companies that deliver above and beyond for customers can earn outperformance payments.
Ofwat is proposing to impose a net underperformance penalty on Pennon's South West Water unit worth GBP2.1 million for failing to deal with pollution incidents across the last two years.
By contrast, the regulator is proposing a net outperformance award to Severn Trent worth GBP38.4 million after making "major progress in reducing sewer flooding - one of the worst service failures customers can experience". Severn Trent has elected to take only GBP11.4 million of the payment "next year", Ofwat said.
Anglian Water, owned by a consortium of investors under parent firm Anglian Water Group Ltd, is to be awarded a net outperformance payment of GBP2.6 million under Ofwat's proposals.
"Three companies chose to receive some of their underperformance penalties and outperformance payments more immediately after the performance in question and this consultation relates to those payments for those companies. The others have opted to have all their underperformance penalties and outperformance payments combined and applied at the time of Ofwat's next price review in 2019, when we will set the service package that customers will receive and the price they will pay in the period 2020-2025," said Ofwat.
Ofwat is proposing that from 2020, all companies will receive some of their penalties and payments close to the performance in question.
Severn Trent was trading up 1.4% on Tuesday, while Pennon shares were up 1.3%. Peer United Utilities PLC was 0.8% higher.
"Our two winners aim to produce high income for investors and protect investors' money when markets fall. Andrew Pitts and Holly Black look at this year's top performers.Best sterling bond fundGAM Star Credit Opportunities GBP1-year return: 14.3%; ..."
(ShareCast News) - Analysts at Credit Suisse downgraded their view on the UK water sector, telling clients there was a fair chance that OFWAT would be less generous in its next regulatory price review, PR 19
Lupo, guys, thanks for your comments much appreciated.
Think I will be in before ex divi as this appears to me an opportunity to buy on weakness with a divi around the corner to enjoy as well with the sp down about 10% over the last month me thinks a bargain.
Yes I could be wrong, it would'nt be the first time CNKS my worst performer! but will be buying for the long term and divi growth which Pennon have stated will grow above RPI for several more years.
Km, it still looks to be a good buy to me - there's a nice yield and whether or not you wait until it goes xd before buying wouldn't matter much, depending on how important yield is against capital growth.
There's some concern that utilities will suffer if/when interest rates rise; so that's a negative, or needs checking out, anyhow.
On the plus side, it doesn't look as if ma d do g Jezzer will get into power for many years to come, if ever; so the likes of Goldman Sucks should be keen to continue adding water utilities to their portfolios.
I like Pennon's expansion into EFW, and stuff, and once those current investments have been made PNN should be able to reduce debt - if circumstances dictate.
Good luck from Lupo who knows stacks about salt water, but not much about the fresh stuff.
I have been looking at Pennon for a few months to buy in long term for the divi. However, while the sp has dropped to attractive levels I cannot see any reason why, particularly with ex divi next week the sp normally rises in the lead up to ex divi, any thoughts greatly appreciated.
Valuations look pretty full across the board in absolute terms, suggesting limited scope for further SP upside for the moment... though the stocks will doubtless do well enough in relative terms on any market setback(s).
In relative terms, not much in it of course, but leaving aside SSE as a somewhat different animal (with a much higher proportion of its business in competitive - and more politically sensitive - markets), I would say NG screens as the most "attractive" at the moment, with UU the least compelling.
SVT and PNN offer faster dividend growth currently, but reflected in lower yields (particularly SVT), while NG offers somewhat better dividend cover comfort. And NG is trading on a decent discount to the (eye-watering) multiples of the water stocks on both earnings and EBITDA.
On balance sheet metrics, it's all relative of course, with sky-high leverage typical to the group... but NG is in a notably stronger position than the water comparators (particularly UU and SVT, up at 6.6x net debt to EBITDA). Such debt levels are clearly not a major concern near-term given current interest rates and the availability of cheap long term finance - but as (if?) and when bond yields gradually 'normalise' I can see this becoming much more of a differentiating issue, and possibly one of increasing and significant market concern.
On a modest yield, paltry current divi growth and lowest cover level, UU looks the most exposed currently - particularly when you throw in the highest P/E and EV/EBITDA ratings in the sector and the sector-high leverage level.
I have sold my modest holding at 918 today as a hedge against volatile in the coming weeks.
The reasoning is very basic - the chart rarely shows PNN holding above 900 for long. Looking to get back in around 865. If that happened before ex div on 6 August I would be very happy.
Long term I believe in this company as a steady dividend play.
"Deutsche Bank downgraded its recommendation on shares of United Utilities and Severn Trent ahead of the 2019 price review.
Despite further increases in the share prices of UK water stocks year-to-date, on the back of a decade-long bull run, that review would come incerasingly into focus towards the end of 2017, the broker said.
Its analysts downgraded their view on United Utilities and Severn from 'buy' to 'hold', but left Pennon at a 'buy'.
However, they raised their targets on the former of those two from 1,000p and 2,300p to 1,050p and 2,450p, respectively.
Shares in United and Severn, Deutsche Bank said, also appeared to be at 'fair value'.
As for Pennon, there might still be scope for the Exeter-based company to reassure on the outlook for Viridor.
Key in terms of the upcoming review would be the new political backdrop, with the focus for the 2020-25 review expected to be on affordability."
Not quite sure what to make of it but the biggest risk (IMO) is if GMWDA succeed and everyone else tries to follow suit. For me, I rather PNN didn't take the payoff (unless it's a stupid amount - which it won't be) and dig their heels in citing the fact they do actually have a contract. Might have to rollover a bit in the end but sit tight short-term.
The other issue is that, if they were to be paid off in full, it would clearly demonstrate just how much juice companies (all of them, not just PNN) had ripped out of government budgets (both local and central) through PFI schemes.
ITDYA unable to think of a single PFI scheme that made any long-term financial sense. Kept government capital spend within 'limits' but always dreadful value for the tax payer.
GM don't want to recycle? Going to put it all into landfill? Obviously not; so what's the solution? Presumably they just want to enter a new cheaper (for GM) agreement and are willing to pay upfront for that.
Well it's still got to be profitable for PNN, or there'll be no more recycling in GM - I suppose.
"Similarly I cannot possibly imagine that CS or other bank will print an analysis of a stock with a downgrade or upgrade without first having circulated it amongst all the important clients... And not just circulated it but consult with the large clients and get them to move in/out of large positions... Therefore by the time you read an analysts report the large clients have already had it and acted on it."
"When you see an analyst downgrading a stock consistently, eg Liberum Capital and PSON, I would not mind betting their proxies have shorts on."
Really Akis?!? I don't mind that many on here have only limited understanding of how brokers operate, and the significant regulatory and compliance constraints they operate under. I also know that many simply don't want to hear it. Fair enough...
But for the benefit of anyone who is at all interested in the reality rather than conspiracy theories, I can assure you that in each case, the suggestions above are more or less 100% unfounded! Maybe less so back in the 1970s... But for any professional active in the broking industry today, or at any time in the past couple of decades, they would merely laugh at the suggestion (though I suspect one or two might be heard to mutter a quiet "if only...!"?)
That's not to say that there isn't still the odd case of something similar from time to time... Go online and look up the (various) cases of recent successful insider trading prosecutions, and what the participants are doing now (clue - the answer being, "time... at Her Majesty's pleasure", and not just a few months in most cases).
And sure, there might be the odd individual who has got away with it thus far... but trust me, of the people I know in the industry (a very substantial number overall), for easily 99%+ of them, it just isn't worth the risk in even contemplating it!
I think the analysts and bankers will not EVER upset their major clients.
During Brexit they sided with Cameron and with the Remoaners and added to the doom and gloom stories because most of their clients were pro-EU.
Only now, so many months later, they are revising their stories.
Similarly I cannot possibly imagine that CS or other bank will print an analysis of a stock with a downgrade or upgrade without first having circulated it amongst all the important clients.
And not just circulated it but consult with the large clients and get them to move in/out of large positions.
Therefore by the time you read an analysts report the large clients have already had it and acted on it.
Top top it up I find it impossible to believe that big news has not already been passed on to the close friends who stand to make small fortunes and also hard to believe that a pro or against analysis would somehow clash with own or client's interests.
When you see an analyst downgrading a stock consistently, eg Liberum Capital and PSON, I would not mind betting their proxies have shorts on.
hmm, these guys should make up their minds. Only in November they said
"09/11/2016 Pennon Group was upgraded to Neutral by analysts at Credit Suisse. They now have a GBP 800.00p price target on the stock."
Typical games by brokers to manipulate their book IMV
Here's the nitty gritty, if anybody fully comprehends it...
"(ShareCast News) - Credit Suisse has downgraded environmental utility infrastructure company Pennon Group to 'underperform' from 'neutral' and lowered the price target to 680p from 800p.
The broker said that the downside in energy-from-waste (EfW) is materialising faster than it anticipated and it sees risk of a potential liability associated with an unconsolidated financing joint venture.
The risks the bank forecasts with EfW include local authority counterparty risk, exposure to competitive pricing which analysts predict will intensify from 2020, execution risk on construction of the Glasgow pant and financing risk with a potentially expensive new hybrid. It added that it sees no drivers of sustainable medium-term upside to pricing.
The earnings per share forecast fell to 35.59p from 36.69p for 2017.
The cut in EPS by 3-4% and price target is primarily due to the bank's valuation of the company's subsidiary Virador, including the Greater Manchester contract and Avonmouth EfW.
It also points to the company's Peninsula MB joint venture, estimating that loss of tax credits could reduce earnings per share (EPS) by around 7 to 10% per annum going forward.
On the plus side the bank values the company's second subsidiary, South West Water (SWW) at a premium to reflect outperformance among its peers but sees bond yields as the main near term driver for UK Water valuations."
Thanks for that Lupo, i've been watching these with a view to buying for some time. If Credit Suisse says don't, i probably will. I stopped taking any notice of them when they recommended sell AHT at about 780 last year. Fortunately i held on and sold at 1400, too early, but hey ho.
"Severn Trent and United Utilities were under the cosh on Wednesday after RBC Capital Markets downgraded both stocks as it took a look at the UK water sector.
The bank cut Severn Trent to 'underperform' from 'sector perform' on valuation grounds but lifted the price target to 2,300p from 2,200p. RBC said it has updated its return on regulated equity calculation and valuation approaches such that the target rises, but with -5% implied total return, it downgraded the rating.
"We believe SVT will continue to be one of the better-held UK water stocks by investors. Its management presents SVT's investment case strongly and largely receives a positive feedback from those who have met them."
RBC downgraded United Utilities to 'underperform' from 'sector perform', also on valuation, noting 4% implied total return, but lifted the price target to 1,000 from 975p.
The Canadian bank said its ratings on both stocks reflect its view that their current trading valuation implies a total return that compares unfavourably to the rest of the European utilities sector.
RBC highlighted a preference for outperform-ratedPennon, which it said offers a "one-stop shop for investors seeking exposure to various long-term themes, including water/waste, safety amidst Brexit, macro recovery (relative to SVT/UU), income-play, earnings growth and UK Water M&A."
RBC lifted its price target for Pennon to 950p from 925p."
My conclusion from reading this is that OFWAT is admitting that they're unable to do their job, and are now hoping that opening water supply to more competition will do it for them.
The stated benefits to customers are ludicrously small in terms of lower prices and completely unproven improvements to levels of service and "innovation" - managing your bills with an App, whooppee!
Just appears to be yet another bureacratic muddle in the offing.
No wonder Water UK is so relaxed about this report, or have I got it wrong?
"Regulator Ofwat has proposed opening the retail water market in England to more competition.
Currently, households have no choice in which water company supplies them. Ofwat says greater competition could mean innovation and lower prices.
Under the proposals, firms could buy water in batches from existing providers and sell it on to households.
Companies could also offer bundles of services, selling gas, electricity or broadband alongside water.
In theory it could mean that banks, supermarkets or phone companies could also sell water.
"We are living in an age of retail revolution, but water customers are being left behind," said Ofwat chief executive Cathryn Ross.
"The service offers from water companies can feel behind the curve compared to the innovation customers benefit from when buying other goods. The uncomfortable truth is that, when it comes to retail offers, water companies provide an analogue service in a digital age."
According to Ofwat, greater competition may only have a modest impact on bills, with an annual saving of £8.
But Ms Ross told the BBC that she expected that opening up the market would lead to better service as well as lower bills.
"We would expect significant benefits to come through to customers in terms of better service," she said.
"For instance, at the moment only two of the water companies in England let their customers manage their bills using an app. That's the kind of thing we'd expect to change and see real innovation."
Ms Ross said that opening up the market would only work for customers if switching was made "as hassle-free as possible".
Water UK, which represents the water companies, said in a statement: "Extending retail competition to over 20 million households could secure potential benefits for domestic customers, but would also be a major undertaking and so deserves to be given very careful consideration.
"We look forward to a timely decision from government which helps sustain the stability the industry needs to continue successfully meeting the needs of its customers."
The government still has to approve any proposals before the market is opened up.
Earlier this year, a report from the Public Accounts Committee (PAC), said millions of households in England and Wales were paying too much for their water supply because of poor oversight by Ofwat.
PAC said the regulator consistently overestimated water companies' costs."
"French water and waste group Veolia plans to invest 750 million pounds in its British recycling business in the next five years, aiming to take advantage of rising landfill taxes that push municipalities and companies to recycle more.
Veolia UK chief executive Estelle Brachlianoff said gradually rising landfill taxes had been a major revenue driver for Veolia in Britain, where it has annual revenue of about 2 billion pounds (2.4 billion euros), making it the company's second-largest market after France.
"We expect Britain will be a major growth area for Veolia in the coming five years as we help this country become greener," Brachlianoff told Reuters in a telephone interview.
Three quarters of Veolia's UK revenue comes from waste recycling, the rest from energy services and water.
Unlike other countries which boost recycling through legislation and subsidies, Britain imposes a steadily increasing landfill tax, now around 85 pounds per tonne.
Brachlianoff said that as the tax had been consistent and predictable, it had spurred a large recycling industry. Twenty years ago Britain was landfilling some 80 percent of its waste; that percentage has now more than halved, she said.
Companies such as Veolia, France's Suez, Britain's Biffa and Pennon unit Viridor as well as a string of smaller niche players are recycling paper, plastic, wood, metals and glass, while organic waste is composted, burned or used as feedstock for biogas production.
Veolia also handles hazardous waste and decommissions North Sea oil rigs. Over the past decade, the firm has invested more than 1.5 billion pounds in its British operations. Unlike in its French market, it does not operate drinking water concessions, but sells services to utilities.
Veolia also sells energy efficiency services to industrial customers and operates 10 energy-from-waste plants, which feed over 2 gigawatt hours (GWh) of electricity per year to the grid.
Brachlianoff said if all of Britain's waste was reused, up to 10 percent of its green energy and up to two percent of its power could come from waste incineration.
"Waste cannot replace nuclear or coal, but among green energies it is significant, not a niche market," she said.
Britain's Interserve said last month it would exit its energy-from-waste business after taking a 70 million pound charge.
Brachlianoff said waste was hard to burn as it can be heterogeneous, containing high-energy plastics as well as wet organic material.
She said some waste, such as asbestos or inert materials, could not be recycled for now.
"Some five percent of waste will still go to landfill for quite a while," she said.
(Reporting by Geert De Clercq; Editing by Mark Potter)"
McCauley gone, just like that. Reassuring statement that they're on track for this year, so hopefully his sudden departure had nothing to do with performance. An unexpected departure like that is somewhat unsettling but not enough for me to abandon ship.
His replacement, Phil Piddington, appears to have very good credentials.
Pennon, the parent company of South West Water and Viridor waste management, offers a slightly more attractive dividend policy than National Grid. From a similar starting yield of 4%, Pennon sets out to increase its payout by 4% above RPI.
Like National Grid, much of what Pennon does is subject to regulation, but there is still room for profits to be made should Pennons water and wastewater businesses clear the regulators bar. Last year, Pennon generated a return on regulated equity of 11.7%, and exceeded Ofwats Outcome Delivery Incentive targets. Performance like this highlights the groups operational effectiveness, and boosts confidence in the dividend.
Around one third of the business is not subject to regulation. The Viridor business, although by no means glamorous, adds another dimension to the group. Despite the depressed oil price hindering the division recently, Viridor is expanding and is expected to contribute an increasing amount to group profits in the coming years although there are no guarantees. "
Water company Pennon Group (PNN) has been upgraded as Investec analyst Roshan Patel sees past the recent underperformance.
Patel upgraded his recommendation from hold to buy but reduced the target price from 835p to 800p. The shares rose 1.8% to 761p yesterday.
We believe Pennons recent underperformance versus regulated water peers reflects investor concern regarding [waste business] Viridor, and in particular, the risk of overcapacity developing in its core energy recovery facilities market, he said.
However, recent evidence suggests the contrary some competitive threats are actually waning. In our view, this creates an interesting opportunity for investors, with demerger arguments likely to resurface if the valuation gap does not correct itself. We update our valuation mode, and with our new 800p price target implying over 11% forecast total return, we upgrade to buy. "
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