Pennon Group shares outlook stable with anticipated dividend cut funding asset growth

Published 27/12/2024, 17:22
Pennon Group shares outlook stable with anticipated dividend cut funding asset growth

On Friday, UBS analyst revised the price target for Pennon Group Plc (LON:PNN:LN) (OTC: PEGRF) to GBP 8.50, down from the previous GBP 9.15, while retaining a Buy rating on the stock. Freshney's analysis draws on the recent PR24 price control outcome, which he perceives as favorable for Pennon due to the anticipated asset base growth. The allowed return of 4.0% CPIH real wholesale matched UBS's projections.

The adjustment in the price target comes after UBS aligned its financial model with the final determination. The firm has reduced its EBIT forecast by a cumulative £184 million for the fiscal years ending in March 2026 to 2030, primarily due to a lower Regulatory Capital Value (RCV) run-off, accounting for £110 million of the reduction. Additionally, UBS's earnings per share (EPS) estimates for Pennon have been lowered by 9% for the fiscal year ending in March 2026 and by 22% for the following year.

Despite these downward revisions, Freshney notes that the changes in EPS forecasts do not affect the firm's valuation of Pennon's stock. However, UBS now anticipates a dividend cut of 35%, up from the previously expected 25%, to support the significant asset base growth.

The new price target of 850 pence reflects an increase in the real risk-free rate by 25 basis points in the firm's Weighted Average Cost of Capital (WACC) calculation. Freshney's commentary underscores the strategic adjustments Pennon may make to fund its growth while aligning with the regulatory framework.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.