Stocks in Focus: Pennon

Pennon: water pipes

This week Jason Butler of NW Brown Wealth Management looks at water and waste management company, Pennon, which recently published its full year financial figures for the year ended 31 March 2019.

Pre-tax profit was up 8.3% and management announced a 6.4% increase in dividend compared to last year. It was a good set of results led by strong performance in the group’s waste management division, Viridor, which delivered underlying earnings (EBITDA) growth of 19.1%.

The encouraging numbers from Viridor is the result of the build out of more Energy Recovery Facilities across the UK, with three new recycling facilities coming online, and the increased performance from existing facilities. Pennon also announced the start of a new growth phase at one of its latest state of the art recycling facility that will be powered by low carbon energy and can turn 320,000 tonnes of non-recyclable residual waste each year into renewable energy, which would otherwise go to landfill.

On the water side, Pennon Water Services (business water supplier) is growing steadily with net customer gains and an increase in revenue of around 5% since last year. Profits were flat for South West Water (residential water supplier) due to cost pressures but it achieved its highest ever customer satisfaction score and is now ranked number two overall for quality of service. Looking ahead, Pennon announced that it will deliver lower bills for customers by 2025, while improving the efficiency of the network and reducing leakages.

Utility companies are facing the increasing threat of renationalisation under a potential Labour government, especially now that a general election may be afoot. However, Pennon’s CEO stated that he does not want to become too distracted by potential political decisions and instead wants to focus on running a good essential public services business that delivers strong results in the right way.

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