Pennon Share Discussion Threads

[mechanical trader] 06/6/2014 12:19

Broker Recommendations
Investors should buy Pennon on takeover hopes, says Deutsche
04 June 2014 11:44

The prospect of another wave of water industry takeovers should tempt investors to buy shares in South West Water (SWW) owner Pennon, says Deutsche Bank.

Pennon and other listed UK water stocks offer attractive returns compared to low-risk UK and US regulated peers such as National Grid, the German broker said.

"We also think there is the potential for more bids once the 2014 review completes, which will set prices through to 2020," Deutsche added.

Pennon, United Utilities and Severn Trent are the only remaining UK listed water utilities after others such as Northumbrian Water were bought out by infrastructure investors and pension funds.

On Tuesday, Pennon said a near-11% rise in profits to £162.5m at regulated water business SWW drove a 9.1% increase in group profits in the year to March 31st to £207.3m.

Deutsche has a 'buy' recommendation on Pennon with an 830p price target.

Pennon's shares offered a prospective annual economic return of about 8%, compared to National Grid and US utilities offering typical returns of about 6.5%, it said.

"Although we still worry there may be long-run overbuild of energy-from-waste capacity, short-term returns should be very attractive from these projects and drive strong group earnings growth in the next three years," the broker added.

Shares in Pennon rose 0.5p to 760.5p by 12:04 in London.

PW

[mechanical trader] 06/6/2014 08:28

Pennon Group PLC.

Break up on the cards on the chart. Speculation that this one is a takeover target.

[yf23_1] 03/6/2014 13:04

If analysts recommend selling defensives you can bet they want to buy them for their own book.

[miata] 03/6/2014 12:39

Deutsche Bank.
Pennon reported FY 2013/14 results slightly ahead of expectations. The
company highlighted excellent progress in developing its energy from waste
pipeline and reiterated its target for the projects to add £100m of EBITDA. It
highlighted the success of its water business in achieving enhanced status for
the 2014 regulatory review, although said nothing new about the scope for
outperformance over the 2015-20 regulatory period, or on its future dividend
policy. We retain a positive view, with an investment in Pennon's shares
offering attractive returns compared to low risk regulated peers in our view.

The company reported results slightly ahead of expectations, with profits from
the water business ahead of expectations, but profits at Viridor slightly below
expectations. It reported group EBIT of £257m (DB forecast £250m, last year
£246m), PBT of £207m (DB forecast £194m, last year £191m), and EPS of
42.6p (DB forecast 38.6p, last year 41.0p). It announced a 6.5% increase in FY
DPS to 30.3p, in-line with its policy to growth DPS by RPI inflation + 4% p.a.

The company reiterated its target for energy from waste projects to add
c.£100m to Viridor's EBITDA and said that its rollout of projects was
progressing well. Runcorn 1 and Exeter are burning waste; Ardley is in the
process of commissioning; and Runcorn 2 and Cardiff are expected to enter
commissioning shortly. The company said it has contracted c.80% of waste
inputs required at opening of projects, of which c.60% is from long-term
contracts. It said that cost cutting and mix improvements had led to a partial
recovery of margins in the recycling business, although said it remained
cautious on the prospects for recyclate prices. It announced a further c.£43m
write-down of its landfill assets, following on from large write-downs last year.

We retain a positive view on the UK water stocks, as we think that sector
offers attractive returns compared to low risk UK and US fully regulated peers.
We also think that there is the potential for more bids once the 2014 review
completes, which will set prices through to 2020. An investment in Pennon's
shares offers a prospective economic return of c.8% p.a., compared to
National Grid and US utilities offering typical returns of c.6.5% p.a.. Although
we still worry that there may be long-run overbuild of energy from waste
capacity, short-term returns should be very attractive from these projects, and
drive strong group earnings growth over the next three years.

[miata] 03/6/2014 12:38

RBC
Overall, the results highlighted the stability in UK water business and the strength of Viridor's expertise in rolling out the EfW power plants.
FY14 weakness in the recycling and landfill operations will be the market's focus today particularly at PNN's 9AM conference call; however, we are encouraged by management's view that recyclate prices have stabilised to some degree and look to this operation bottoming out. Given the lack of catalysts in the UK water space for SWW bar changes in M&A discussion, we look to the recovery of the recycling operations and the continued delivery of the EfW developments (and their ultimate contribution group PBIT) to be future positive catalysts for the stock.

FY14 result highlights
l South West Water recorded PBIT of £227m, which is in line with our £228m estimate. Given that Ofwat published SWW's AMP6 draft determination in April, there were no additional disclosures to note, and we would expect this business to continue delivering stable cash flow and steady RCV growth. Final determinations for SWW will be published on 12 December. l Viridor including JVs recorded £44m in PBIT which is in line with our estimate. We highlight the following three business segments.
o Energy-from-Waste (EfW) – Developments are on time and on budget. 70% of spend on EfW projects under construction are now complete and ~80% of require waste inputs for the committed plants are now secured. Five plants, being Runcorn I and II, Exeter,
Ardley and Cardiff, have reached advanced stages of build and are expected to come onstream this financial year. EfW developments remain on target to deliver £100m to Viridor's EBITDA within three financial years.
o Recycling – Volumes were down 3%, with recylate prices averaging £93/t for FY14A (versus £99/t last year). Management noted that prices have stabilised to some degree but remain under pressure. Viridor will focus on cost reduction and revenue optimisation for now.
o Landfill – The company recorded £48.6m in exceptional impairment and provision charges (worth ~1% of PNN's share price) due to aggressive pricing from competitors. Last year, Viridor recorded around a £189m charge for asset impairments and provisions (primarily in landfill). Note, landfill operations make up only 1% of our valuation for the group.

[zeppo] 02/6/2014 19:02

If you are in these companies for income, as some of us are, share price is less important than divi. rises.

Annual divi in 2001 was 12p (see Financials above). By last year it had risen to 28.46p.

Whilst interest rates on cash?

z

[luckymouse] 02/6/2014 17:47

Great run here - but im wondering if its peaked - forecasts post results dont look great

[miata] 02/6/2014 07:58

Analysts recommend investors start to sell defensives, pointing out that 72% of defensive stocks have outperformed over the last month – "a ratio that has only been higher three times in the last decade". "Given our view that we are not about to see a sharp slowdown, we believe a compelling opportunity has now emerged for investors to start selling defensives."

[miata] 16/4/2014 14:33

16 Apr 2014 Pennon Group PLC PNN Deutsche Bank Buy 736.50 737.00 880.00 830.00

[ohisay] 08/4/2014 17:14

Updated RBC note on the sector.
As bullish as before on PNN.



Confirmed for enhanced status, next catalyst on 30 April
South West Water was confirmed for enhanced status and whilst this was expected, it added another layer of certainty for the company in the current price review. The next catalyst for SWW will be 30 April when it is expected to receive its draft determination, which is 2-4 months ahead of SVT and UU. This suggests that SWW can get an early start in making any decisions necessary to position (if not lock-in) itself for outperformance in AMP6.
We recognise that the April determination is a draft version only and the final determination on 12 December may not be identical. However, given improved transparency and engagement between Ofwat and the industry in this price review (versus in the past), it is reasonable to assume that the draft and final determinations will not be overly different, if at all.
Furthermore, by having an enhanced status, Ofwat will apply the 'do no harm' principle on SWW. This means that Ofwat will amend SWW's allowed return in line with any upward adjustments for other companies if there were to be a substantial shift in capital markets, or other unexpected events which meant that the risk and reward package needed to increase

[ohisay] 08/4/2014 14:02

Weakness today - UK interest rate rises coming up shortly ?

The pound rose toward the highest level since 2009 against the dollar as U.K. industrial output expanded more than economists forecast, stoking bets the Bank of England will hasten plans to increase interest rate.

Sterling appreciated to the strongest level in a month versus the euro as a report showed wage growth accelerated to the fastest pace in seven years. The gains extended the pound's world-beating advance in the past 12 months as an improving economy added to speculation policy makers will boost borrowing costs as soon as next year. U.K. government bonds fell.

[miata] 04/4/2014 09:50

Ofwat today confirmed that South West Water and Affinity Water have been awarded 'enhanced' status as part of its 2014 price review.

Pennon remains the top sector pick of UBS. The broker sees it as the most likely bid target of the listed UK water companies due to its smaller size.

[yf23_1] 10/3/2014 12:24

I had imagined selling these once they got over £7 because as you can see, every time they get over it they get knocked on the head.
Sometimes it pays to be lazy.

[miata] 10/3/2014 11:54

OfWat.

If South West Water and Affinity Water accept the guidance and undertake a number of other limited actions, they will gain the advantages of enhanced status – including a fast-track through the price review process – benefiting both the companies and their customers,' Ofwat said in a statement.

[yf23_1] 10/3/2014 11:43

Into orbit now - bid interest ?

[apad] 24/2/2014 19:58

Seconded, thanks OIS.
It looks like the usual cycle at review time has been broken by the freeze on consumer prices.
I see a real future for the EfW income stream. Would have liked to see news of some more projects.
apad

[stevieweebie2] 24/2/2014 16:09

Great post OIS

I hold as well as UU. so happy days.

[ohisay] 24/2/2014 15:59

RBC on the sector...




Outperform -810p price target -see p17.

[ohisay] 28/1/2014 17:34

Takeover talk about UU

[losos] 28/1/2014 16:36

Goes ex div tommorrow

[yf23_1] 28/1/2014 16:19

They've got more water to play with ?

[gateside] 28/1/2014 16:01

And UU. is up too

[skinny] 28/1/2014 15:50

There must be some sector guidance out perhaps? - SVT is up 5%.

[gateside] 28/1/2014 15:49

Any idea why this is shooting up?

[ohisay] 16/1/2014 08:32

Rash of higher broker targets.