United Utilities stock falls after earnings report

Investing.com -- Shares of United Utilities (LON:UU) declined by 2.5% following the release of their earnings report.

The drop in stock value comes despite the company reporting a 22% increase in underlying operating profit, which now stands at £634m, reflecting regulatory adjustments. This increase was partly offset by higher costs due to growth in the underlying asset base and inflationary pressures.

The reported dividend per share (DPS) rose by 4% to £51.9, aligning with the group’s policy to target growth at the rate of CPIH inflation each year. Return on Regulated Equity (RoRE) was projected at 1.1% real for the fiscal year 2025, a figure that comprises a 4.0% base return and a 2.9% underperformance. This is a notable decrease when compared to the average RoRE of 6.1% for the current Asset Management Plan period (AMP7).

United Utilities’ balance sheet showed an RCV Gearing at 60%, which is within the lower half of their target range of 55%-65%. Net debt as of March 31, 2025, was reported at £9,345m, an increase from £8,763m the previous year.

Looking forward, United Utilities forecasts a net customer Outcome Delivery Incentives (ODI) penalty for the fiscal year 2026, acknowledging the introduction of new measures in the next Asset Management Plan period (AMP8).

Capital expenditures (Capex) for FY26 are expected to exceed £1.5bn. For AMP8, the company is targeting at least ~100 basis points of outperformance, with Capex projected to total ~£9bn and a Regulatory Capital Value (RCV) growth guidance at ~7% compound annual growth rate (CAGR). Dividend growth is expected to remain in line with CPIH, and the company aims to maintain gearing within the target range of 55-65%.

Analysts at RBC commented on the forward guidance, saying, "We think the forward guidance likely results in an increase in consensus earnings for FY26 which will likely be the key point of focus. We do not forecast a material ODI outperformance for UU into AMP8 however we expect that a penalty will be driven by weather responsive measures such as internal sewer flooding and pollutions.

There is no guidance yet on what that number will look like but we would expect it would be fairly modest given UU’s position as a strong ODI performer in the sector."

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