- ‘Strong’ return to profitability
- Pollution and storm overflow spills halved
- Search for new CEO underway
Pennon (PNN) shares bubbled up 0.3% to 455p after the water utility said it was on track to deliver a ‘strong return’ to profitability for the year to March 2026, with EBITDA (earnings before interest, tax, depreciation and amortisation) anticipated to increase by 60% year-on-year.
Investors also welcomed news the FTSE 250 company is on course to deliver its 7% return on regulated equity target, with efficiencies in delivering its capital programme more than offsetting other cost pressures.
FEELING THE HEAT
In a trading statement covering April 1 to September 25, Exeter-based Pennon explained that high demand for water over the summer due to the hot weather was more than offset in revenue by increased meter usage, deferring sales into financial 2027.
In addition, the hot weather resulted in higher operational costs to respond to the increased demand and operational pressure on the networks.
Despite this, Pennon said it has made a ‘strong return’ to profitability, with EBITDA expected to be 60% above the £335.6 million delivered last year.
In Wastewater Services, Pennon said it financial 2026 outcome delivery incentives are tracking to be ‘net neutral’, noting that pollution incidents have halved in the eight months to August, while storm overflow spills have reduced by nearly 50% year-on-year.
But in Water Services, ODIs have been impacted by supply interruptions from a burst main at the Dousland Water Treatment Works. Dry ground conditions across its regions led to increased network incidents and leakage, the firm pointed out.
Pennon said construction is underway on all four of the major power projects with Dunfermline in Fife and Cullerlie in Aberdeenshire both fully constructed and scheduled to be generating power during October.
DAVY TO DEPART
Outgoing CEO Susan Davy said: ‘Despite the pressures of a hot summer, we’ve maintained resilient water supplies and continued to improve services for our customers. Whilst there is more to do, our pollution reduction plans are delivering tangible benefits, halving the number of pollutions and spills from storm overflows, reducing our impact on the environment.’
Pennon is now progressing a ‘rigorous’ search process to appoint a successor to Davy, who announced her intention to retire in July.
SIGNS OF PROGRESS
Russ Mould, investment director at AJ Bell, commented: ‘Cleaning up the water utility sector’s reputation would probably take more H2O than can be found in Rutland Water, the UK’s largest reservoir, but the latest results from South West Water owner Pennon demonstrate some signs of progress.
‘Managing to halve pollution and storm overflow spills year-on-year is impressive but also speaks to how acute these problems have been in the past. It is notable that Pennon still has legacy issues to address over wastewater incidents and last year’s water parasite outbreak in Devon.’
Mould continued: ‘From a shareholder perspective, the return to profitability is welcome and a decent achievement given the pressures from the hot weather over the summer. The looming retirement of Davy means the company has a succession issue to tackle and investors will be hoping for an update on this process when Pennon announces its first-half results in November.
‘Pennon has raised more money to boost the balance sheet, an important consideration given the financial problems endured by the industry. It is also making investments in renewable power projects which will help meet the company’s energy needs.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Tom Sieber) own shares in AJ Bell.
