Pennon Share Discussion Threads

[miata] 04/11/2013 12:13

Viridor is not restricted, but is not doing well.

At the last results it announced that falling recyclate prices contributed to a 36.6% fall in profits in 2012/13. Its PBT fell by £21.1million to £36.5million.
It plans to reduce its network of landfill sites from 21 to three by the end of 2020.

[zeppo] 04/11/2013 10:40

If they become the equivalent of bonds with no or minimal div rises the to my mind they are worth holding on to.

Smaller divi rises may have to be agreed but that is still far better than any cash return that can currently be envisaged.

Pennon do have the waste division which is presumably not restricted in the same way by a regulator.

IMHO

z

[huttonr] 04/11/2013 08:34

Re the latest noises from the government on treatment of the water companies - ie appear tough and presumably lean on the regulator to get lower prices for consumers.

What do people think? - will it get anywhere significant? - I have been assuming a somewhat more rigorous regime in the next five year review so my inclination is to keep my investment intact.

[miata] 23/9/2013 13:16

Questor

Returns from utility shares are governed by the regulator. In the water sector that regulator is Ofwat. The regulator agrees the prices water companies can charge, what price increases are allowed, what level of investment is required into pipes and reservoirs and the return the companies are allowed to make. These are agreed and then set for a five-year period. That is important.
Utility stocks tend to peak at the midpoint in the regulatory period. It's therefore worth noting that we are now past that point in the water sector as the current AMP5 five-year regulatory planning period runs from 2010 to 2015. Historically, water shares have tended to struggle after the midpoint in the regulatory period and 2013 looks likely to be no different.

[miata] 13/9/2013 12:58

Ofwat says it will challenge Thames Water's request to increase customer bills by up to 8% next year.

Ofwat is due to make a final decision on the future prices water companies can charge by January 2015, with new bills coming into effect in April 2015.

[miata] 13/9/2013 11:52

Now JP Morgan says it continues to prefer PNN of the listed water
companies, as it has less exposure to the regulatory review given the
growth in its waste business, Viridor.

[miata] 13/9/2013 11:49

EfW supply is increasing while demand is falling: We see potential feedstock volumes for new EfW falling at c9% p.a. over the past 10 years, as recycling rates increase and overall waste volumes decline. We expect increasing supply and decreasing demand could yield pricing pressure on gate fees, as operators compete for volumes. The situation in the Netherlands and Germany – where considerable investment and declining volumes led quickly to EfW overcapacity – provides a cautionary precedent, in our view.

We see c50% of Viridor's capacity exposed to merchant risk: Viridor secured sufficient baseload volume via long-term municipal contracts to fill c50% of its capacity, with the remaining c50% dependent on market gate fees. Viridor's largest merchant facility, Runcorn II (375kt p.a.), did not secure targeted baseload municipal contracts, recently had its application to source up to 480kt p.a. (currently only c85kt p.a.) of waste by road rejected, and is nine months behind schedule.

Market valuations are high, we see downside: Our new TP reflects value accretion of c10-15% on Viridor's pipeline facilities, implying a multiple of c10.6x FYmar18E EBITDA (undiscounted). We see the market pricing in c50% accretion, suggesting a c14x multiple, assuming the core Viridor business is on c7.2x EV/EBITDA and SWW at a c11% premium to RAB. We see consensus valuation as at a premium, and the balance of risk to the downside.

Assuming Pennon is able to leverage at the Group level to c75% net debt / RAB (OFWAT-published), and Viridor can leverage to 4.0x EBITDA, we see c£130m of equity capital in balance sheet headroom. If the relevant RAB for covenant purposes is based on actual CAPEX, and Viridor can only go to c3.5x, our estimate would fall to c£30m.

Pennon has (a) a SCRIP dividend with an average take-up of c20%; (b) a hybrid bond costing c£16m p.a. to FYmar18E; and (c) a convertible bond diluting the share count by c6% (assuming conversion), more than offsetting growth in EPS attributable FYmar13A-17E.

Our DCF-derived TP puts SWW at a c11% premium to the FYmar14E RAB, with the 'core' Viridor business at c7.2x EV/EBITDA, and the large contracts and pipeline EfW facilities at c£1.2bn (equivalent to c14% average value accretion, or c10.6x FYmar18E EBITDA).

[miata] 13/9/2013 09:17

13 Sep 2013 Pennon Group PLC PNN Credit Suisse Underperform 707.00 726.50 670.00 610.00 Downgrades

(28-Aug-13 JP Morgan Cazenove Overweight 693.50p 670.00p 745.00p Upgrade.
Pennon was at 681p before this upgrade, it added about 20p as the majority of analysts had been neutral.)

[keifer derrin] 13/9/2013 09:08

i know we've had a good run, but the drop is a bit sharp - anybody know why - we aren't exdiv

[ohisay] 28/8/2013 07:59

JPMorgan Cazenove Ups Pennon Group To Overweight

0626 GMT [Dow Jones] JPMorgan Cazenove upgrades Pennon Group (PNN.LN) to overweight from neutral and target to 745p from 670p. Says UK water companies face an uncertain 16 months until the regulator's final determinations are published in December 2014, however, says Pennon's sizeable waste business (Viridor) means that it has less exposure to the review than its peers. "Pennon has underperformed Severn Trent (SVT.LN) and United Utilities (UU.LN) by 7% and 6% respectively over the last year," it says. "With signs of improvement in the waste market and greater visibility around its EfW build programme, we believe it is well placed to reverse that underperformance in 2H." Shares closed Tuesday at 681p.

And ..

[apad] 23/8/2013 18:35

MIATA
Two variables that do not figure in your argument.
One: there has always been the sleight of hand in that government promisary notes decrease in value (money in circulation doubles about every 14 years).
Two: the underlying assumption is that sovereign governments are "safe". Arguably GSK is safer than Greece.
The basic equation is sustained by rules that are predicated on the assumption of safety.
I take the view that global companies are now more powerful than some countries.
The problem with PNN is that it is susceptible to government intervention. I.e. it is local.
apad

[miata] 22/8/2013 17:18

Not quite now, and more of a little bit of a slow grind than a push. Maybe time to put on a few limit sells below 700.

[nick54] 22/8/2013 16:56

Should we be bailing now Miata or one more push up?

[miata] 22/8/2013 12:16

Looking further ahead:

Imagine a share of stock that will pay you $100 in dividends every year for the next, say, 100 years. How much is that worth in today's money? How much would you pay for that stock? To know the value, you have to apply a relevant "discount rate" - in layman's terms, and with some oversimplification, you have to know what interest rate you could get on the money if you didn't buy the stock.

In May, you knew you could earn 1.6% a year, at least for the next 10 years, if you left your money in ten-year Treasury notes. Applying a 1.6% discount rate to our stream of $100 dividends produces a value of $4,972. In other words, that's how much that theoretical stock would be worth, in today's money, if we use a discount rate of 1.6%.

Hike that discount rate to 2.7% - the interest rate on the Treasury note today - and that value collapses by nearly a third, to $3,445. Hike the discount rate to 4.5% - a normal rate on the Treasury - and the value halves to $2,240.

To put this in very simple logic: The Federal Reserve has been suppressing interest-rates to boost the economy. That suppression artificially hiked the value of the stock market, by a simple mathematical equation. Now that suppression is coming to an end, interest rates can be expected to rise. That rise ought - again, by a simple mathematical equation - to reduce the value of the stock market. Dramatically.

[ohisay] 22/8/2013 09:08

Shades of boiling water and frogs - if you know what I mean.



There appeared to be a vigorous discussion within the central bank about lowering the unemployment threshold – now set at 6.5 per cent – for the first rise in interest rates, which are close to zero.

Such a move could help alleviate concerns that a move by the Fed to trim and then end what is known as "quantitative easing" will be quickly followed by increases in interest rates. The Fed has always been keen to separate tapering asset purchases from an actual tightening of monetary policy.

[miata] 20/8/2013 08:59

Wednesday's FOMC minutes are likely to confirm QE tapering and thus rising US and UK bond yields - a negative for utility share prices.

[arja] 12/8/2013 09:27

thanks for comments Miata and I will read it. I see utilities are slipping today but most stocks are and even resource stocks quickly ran out of steam after a bright start .

[miata] 12/8/2013 08:16

Thames Water is asking Ofwat for an additional price increase.

Thames Water has reacted to a report by Centre Forum, which accused water companies of "reckless profiteering". The report, 'Money down the Drain: getting a better deal for consumers from the water industry', has been described by Thames Water as "misleading".

The report can be downloaded here:

[miata] 10/8/2013 10:52

Utility stocks are valued on their ability to generate inflation-protected yield, not their p/e. The gamble (which ultra rich middle east states can afford to take) is that the regulators will allow this to continue as generously in the future as they have done in the past.

[arja] 10/8/2013 10:41

I see . so maybe just stocks for trading as many stocks are. But strange that SVT was almost taken over recently as p/e ratios are high in utility stocks .

[arja] 10/8/2013 10:40

I see . so maybe just stocks for trading as many stocks are. But strange that SVT was almost taken over recently as p/e ratios are high in utility stocks .

[arja] 10/8/2013 10:40

I see . so maybe just stocks for trading as many stocks are. But strange that SVT was almost taken over recently as p/e ratios are high in utility stocks .

[arja] 10/8/2013 10:40

I see . so maybe just stocks for trading as many stocks are. But strange that SVT was almost taken over recently as p/e ratios are high in utility stocks .

[arja] 10/8/2013 10:40

I see . so maybe just stocks for trading as many stocks are. But strange that SVT was almost taken over recently as p/e ratios are high in utility stocks .

[arja] 10/8/2013 10:40

I see . so maybe just stocks for trading as many stocks are. But strange that SVT was almost taken over recently as p/e ratios are high in utility stocks .