UUW has fallen more than the other quoted companies, perhaps the market doesn't see that management is able to meet the challenge of a reduced WACC. This company needs to take a serious look at its cost base, the use of contractors for most network activities incurs a heavy management cost with no real way of reducing contractor cost. A back to basics review is needed.
With Corbin threatening to renationalise the utilities who would went to buy UU?
However to renationalise the utility companies:-
1. Corbin will need to get elected
2. He would need to get the financial institution backing as this is where are a lot of our pensions are invested?
3. Where would the money come from? he can't just take them back into Gov hands as most are fully or partly owned by overseas companies.
Can't see renationalisation happening nor a UU take over at the moment but who knows?
With every drop in price of this share, the chance of an outsider coming in and making a predatory move increases, it has now dropped 20% in a very short time period, to me it just seems like a matter of time before this happens, could be wrong just a feeling taking into account past attempts within the industry.
Debt costs are only one aspect, there are also the normal business costs of using electricity. A reduced debt servicing cost is meaningless if the operational costs increase by more than the debt servicing reduction.
UU are trying to isolate themselves from the external uncontrollable costs of their energy by making their own. The following articles appear to suggest that there is a considerable benefit from their approach, a benefit that probably far outweighs using the funds to reduce the debt pile.
As far as I can judge, the use of green energy projects are still peripheral, and they do not indicate any lack of focus on the main activities. Once the facilities are in place they will save management from the task of having to micro-manage their external energy supplies. The projects I have seen are related to facilities that UU have to manage anyway.
The primary reason for the recent downgrade of UUW is the perceived ability to repay it's debts, to add to the debts in addition to employing in house staff to procure and maintain the systems seems to be something outwith the role of a water company. UUW spent several years reducing the company scope to focus on core business and to make these investments seems to be a retro grade step. Water and wastewater are a difficult enough business to manage without having management focus diverted to non core activities. After all it is only 1 year since many thousands of customers were drinking from bottles due to a mismanaged network.
I am sure that they looked at the various alternatives, covering self investment vs contracting out, and apparently concluded that the financial case (among other aspects) indicated that self investment was the best approach.
It is an effort to reduce costs rather than a corporate realignment from water/sewage services to becoming a major electricity generator. Using external Companies does not provide the capability to control internal costs, especially as the external Company pockets any benefits and can easily ratchet up costs.
UU. is a large electricity user, and is susceptible to increases in charges for this electricity. Generating the electricity themselves reduces this impact.
However, I do agree that debt servicing costs can negate many of the benefits, especially if interest rates were to rise dramatically, so it is extremely important for UU. to manage their debt carefully.
UUW should not be borrowing more money to fund solar arrays on reservoirs and its offices. The payback is measured in decades and UUW would do better to rent those sites to a company who could then sell back the power, or even better just concentrate on minimising borrowings and increasing productivity.
Little wonder that Severn Trent is surging ahead of UUW, ST dividend up by 6% v UUW 2.2%. UUW needs to make a substantive change if they are to keep up with ST and also Pennon who have a 4% dividend increase policy.
United Utilities nudged up its first-half dividend after revenue and underlying profits rose.
The company declared an interim payout of 13.24p, up 2.2% from 12.95p in the previous year.
Underlying pre-tax profit rose 5.7% to £160.1m, as revenue rose 2.7% to £876.0m.
"As we turn our attention to the next price review for the period 2020 to 2025, we are engaging with customers across our region to understand their needs and preferences and to formulate plans that best satisfy those needs," chief executive Steve Mogford said.
"Affordability will be key, balanced against resilience to climate change and population growth in our region."
Divvy up 2.2% and inflation at 3% so not too good, but at these prices yield is a chunky 5% and downside risk is minimal IMHO.
UUW would do well to return to its core business, it is investing big money on solar arrays for in an effort to reduce running costs. Why not just let someone else invest the money and UUW then just buys the energy. Water and sewage companies should be just what it says on the tin, not a speculative business borrowing money with decades before a payback.
re the intention of a Labour government to re-nationalise the utilities - yes I am sure this weighing in the share price, but the reality is they would not be able to afford it without creating a huge public debt, and for what ultimate benefit other than an ideology. Does anyone really think crackpots like Corbyn/MacDonald could run utilities better for the nation... They can't even manage a political party.. I know - "Lets have a debate" on it...
Could it be that the current weakness of the HMG and the spectre of the labour party getting into power with John Macdonald as chancellor taking back the utilities into public ownership, have something to do with it?
Most amusing. SP has fallen ever since that IC comment.
Agree that today's fall suggests it is oversold and have also topped up at 792. However, this sustained fall since the IC comment must have a reason behind it other than the usual IC jinx, surely.
Other utilities are down today, particularly water, but UU seems to be the worst hit.
It wasn't that I didn't believe you, just that the market took a while to react.
I topped up at 829 on the way down, so missed the bottom (real shares, as I don't SB), with the intention of selling into the anticipated bounce, since the general trend is still downwards. Unfortunately, unlike SB positions, a larger rise is required to cover costs, so need a few pence more before closing.
Hopefully it will benefit from a rise towards the December divi and a Santa rally.
Investing rather than trading so have increased my UU holding by 30% this week. It's dropped my average price down as well and looking forward to a gradual return to recent SP values. Solid dividend payments will calm any nerves during the down times.
Important message from the Financial Conduct Authority:
Posting inside information that is not public knowledge, or information that is false or misleading, may constitute market abuse.
This could lead to an unlimited fine and up to seven years in prison.
If you have any information, concerns or queries about market abuse, click here.
The content of the messages posted represents the opinions of the author, and does not represent the opinions of Interactive Investor Trading Limited or its affiliates and has not been approved or issued by Interactive Investor Trading Limited.
You should be aware that the other participants of the above discussion group are strangers to you and may make statements which may be misleading, deceptive or wrong.
Please remember that the value of investments or income from them may go down as well as up and that the past performance of an investment is not a guide to its performance in the future.
The discussion boards on this site are intended to be an information sharing forum and is not intended to address your particular requirements.
Whilst information provided on them can help with your investment research you need to consider carefully whether you should make (or refraining from making) investment or other decisions based on what you see without doing further research on investments you are interested in.
Participating in this forum cannot be a substitute for obtaining advice from an appropriate expert independent adviser who takes into account your circumstances and specific investment needs in selected investments that are appropriate for you.