Water, waste and recycling company Pennon (PNN) said it is on track to meet expectations as it launched a strategic review of is focus, growth options and capital allocation policy.

Shares in the FTSE 250 company nudged around 1% higher to 800p.

The company believes now is the right time to conduct a full strategic review, raising the prospect that it may spin-off the waste management business, Viridor, or perhaps the water businesses to become a pure recycling play.

The company has spent over £1.5bn building 10 Energy Recovery Facilities (ERF’s) which take household rubbish that can’t be recycled or put in landfill and turn it into electricity and heat. The latest ERF in Avonmouth is due to start in the next six months with operational ramp-up expected in the 2020/21 period.

The facilities make money in a number of ways including charging for the collection of the waste, selling the heat and electricity back to the National Grid (NG.) and selling ash by-products to construction companies.

The company is looking at options to develop three new ERF’s and has signed a joint-venture with Grundon Waste Management to build a facility in West Sussex.

In addition the company is building a plastics reprocessing facility which is expected to contribute to earnings next year and beyond. Management believe that there are strong fundamentals driving plastics recycling and reprocessing.

So much so that the company is exploring investment opportunities for two further facilities co-located next to the ERF’s in Ardley, Oxfordshire and Dunbar, near Edinburgh.


Viridor’s earnings before interest, tax, depreciation and amortisation (EBITDA) has grown at a compound average rate of 46.3% over the last four years, but increasing capital expenditures used to build more facilities have swallowed up the cash generated.

Peak capital expenditures probably aren’t far away, which means that the business will be viable as a standalone entity which has significant growth opportunities ahead.

Investor demand for green investments is high at the moment and Pennon might be thinking of ‘tapping’ that demand.

South West Water is on track to deliver continued outperformance and sector leading returns on regulated equity, estimated to be around 11.8% for current financial year.

Last year’s very hot weather hasn’t been repeated in 2019, resulting in more normal revenues in the first half.

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Issue Date: 27 Sep 2019