Water, waste and recycling company Pennon (PNN) delivered first half revenue and profit for the period ended 30 September in-line with expectations, but gave a confident outlook for the rest of the year, giving the shares a 2.6% boost to 950p.
Revenue was 5% lower at £712.4m which reflected lower demand in the South West water business against tough comparatives and the planned cessation of the Greater Manchester recycling contract in the Viridor waste recycling business.
LONGER TERM DEMAND UNDERPINS GROWTH
Despite lower revenue at Viridor (£388m) earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 14.8% to £120m on increased performance from the new energy recovery facilities (ERFs) as availability levels were ramped up and a strong contribution from the joint ventures, due to the company increasing its economic interest in INEOS Runcorn holdings to 75% from 37.5%.
The fundamentals remain strong as the ERF capacity gap is expected to be around 7m tonnes by 2035, supporting a further 23 large facilities with an additional 12 if recycling rates do not improve.
EXCITING RECYCLING PROSPECTS
The outlook for recycling is supported by the Government's target to collect and recycle 75% of plastics by 2025 compared with 46% currently. Fulfilling the required capacity would add a further 24 facilities the size of the company’s Avonmouth plastics recycling plant, which is due to be operational next year.
The company is developing options for two more facilities co-located at their Dunbar and and Ardley ERFs, more than doubling Viridor’s capacity, resulting in an estimated 15% market share.
The board declared an interim dividend of 13.66p, up 6.4% and continues the long established policy of delivering 4% year-on-year growth above the retail price index.
Pennon confirmed that the results of the strategic review, announced in September are ongoing and that its conclusions will be revealed in 2020. These could result in the Viridor business being spun off as a separate entity.
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