25th Mar 2024 12:03
(Alliance News) - Pennon Group PLC's trading update was viewed as a "small negative" as heavy rainfall is expected to delay the attainment of an industry-leading performance gauge.
Shares in Pennon fell 2.8% to 651.00 pence each on Monday afternoon in London.
Pennon said its financial performance for the year ending March 31 remains in line with expectations, despite its waste water operational performance being impacted by "challenging" weather conditions.
The Exeter-based water utility company said due to annual rainfall in the South West increasing by 50% in the second half of its financial year, the "significantly increased wastewater flows" have hurt its headline performance for wastewater pollutions and use of storm overflows.
Aarin Chiekrie, equity analyst, Hargreaves Lansdown noted alongside 10 named storms since September and 12 yellow weather warnings for the region, managing all this extra water has "proved challenging for the group."
Nonetheless, Pennon said: "We continue to make sustainable progress on delivering environmental improvements across the region, with 78 interventions underway to improve 49 of 151 beaches through our WaterFit programme by 2025."
Pennon anticipates retaining its 2 star environmental performance assessment status for 2023, assuming Environment Agency confirmation of its improved water resource position.
But for 2024, whilst six of the seven EPA metrics are tracking positively towards 4 star equivalent performance, current operating conditions have meant the benefits of the pollution incident reduction plan will not be seen until 2025, it said.
"As such overall 4 star EPA status is now reprofiled for 2025," Pennon added.
"Overall, we see the update as a small negative due to the delayed improvement in EPA performance rating," analysts at Jefferies commented.
Analysts at UBS agreed that it was a "small negative" but think it is mostly reflected in the share price.
UBS pointed out the 2025 date for 4 star EPA status was a year later than expected.
Aarin Chiekrie, equity analyst, Hargreaves Lansdown was encouraged by the trading performance which he said revealed that everything’s" flowing smoothly".
He noted Pennon's recent acquisition of Sutton and East Surrey Water is moving through the Competition & Markets Authority review process as expected.
He feels the GBP89 million price tag looks attractive and will help Pennon increase its foothold across Southern England by bringing in more than 750,000 paying customers into the fold.
"On the whole, profit pipelines appear to be in robust shape," he concluded.
By Jeremy Cutler, Alliance News reporter
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