Report
Tancrede Fulop
EUR 850.00 For Business Accounts Only

Morningstar | United Utilities on Track to Meet Full-Year Expectations; Shares Overvalued

We reaffirm our GBX 700 fair value estimate, along with our no-moat and stable trend ratings, after United Utilities said current trading is in line with its expectations in its trading statement for the first nine months of its 2018-19 fiscal year. Shares are overvalued.

The group guides for 2018/19 underlying operating profit are higher than 2017, which is largely within reach after 23% growth in the first half. We are expecting to slightly increase our 4% growth estimate in underlying profit. Because of lower inflation, compared with 2018, the group's index-linked debt is lower than 2018, which will drive a GBP 45 million reduction in underlying net finance expense for 2018-19. Accordingly, we will marginally reduce our net finance expense estimate. The positive impact on the bottom line of the two changes above will be mitigated by an increasing tax rate as we believe our current estimate is too low. This higher tax rate is also likely to have a negative effect on our 2019-20 underlying net income estimate.

The effect of these changes on earnings in subsequent years and on valuation will be limited. We expect a 21% drop in 2021 net income owing to the cut in allowed returns in the new regulatory regime, in line with Ofwat's final methodology for the 2019 price review.
Underlying
United Utilities Group PLC

United Utilities Group is a water company. Through its subsidiary, United Utilities Water Limited, Co. provides water and wastewater services to peoples in the North West of England.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Tancrede Fulop

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