Pennon on target to meet full year expectations

Water utility and waste management company Pennon Group said it was on track to meet management expectations for the year ending 31 March thanks to solid performances across its divisions.

The company said its return on regulated equity – a measure of the return the company earns – was on track to remain at around 11.5% for the full year 2015/16.

Pennon said higher group earnings before interest, taxes, depreciation and amortisation expectations were driven by the full year effect of the five new energy recovery facilities brought on stream in 2014/15 and the contribution from Bournemouth Water.

Chief executive Chris Loughlin said: “Viridor, South West Water and Bournemouth Water are all performing well and results for the full year 2015/16 are on course to meet management expectations.

“As we move towards a more consistent risk profile across Pennon, we are increasingly well-positioned to drive sustainable profit and dividend growth. We remain committed to growing dividends at +4% above RPI inflation through to 2020."

The company said the integration of Bournemouth Water into South West Water was ongoing and will be substantially complete by the end of 2016.

Pennon acquired Bournemouth from Sembcorp Bournemouth Water Investments for £100.3m in April 2015.

The update was generally well received but the shares fell as Bryan Garnier downgraded its rating on the stock to ‘sell’ from ‘neutral’ following a fairly strong relative performance over the past six months and the fact it is now trading just 9% below its all-time high.

“We appreciate the group’s strategy, especially in the waste business, but see potential uncertainty on UK inflation and power prices as clearly negative for the investment case, especially at current multiples,” it said.

At 1000 GMT, Pennon shares were 2.5% lower at 812.50p.