Morningstar | United Utilities On Track to Meet Half-Year Expectations; Shares Fairly Valued
We are reaffirming our GBX 700 per share fair value estimate, along with our no-moat and stable moat trend ratings, after United Utilities Group affirmed that first-half fiscal 2019 results should be in line with management's expectations. Detailed half-year results will be released on Nov. 21, 2018. Shares are fairly valued.Management mentioned that the extended period of hot and dry weather will entail additional costs of GBP 80 million in fiscal 2019. Half of this amount will be booked as nonrecurring operating costs and will therefore not affect the recurring operating profit, which is guided to be higher than last year, in line with our full-year estimate. The other half will be booked as capital expenditure. Additionally, the group guides that first-half net finance expense will be around GBP 30 million, lower than last year, owing to the impact of lower inflation on index-linked debt. This is slightly below our full-year net finance expense estimates. Altogether, the above-mentioned items will have no impact on our fair value estimate. Our forecasts point to a 2% average annual decline in net income through 2022. Key to that is the 21% drop that we expect in 2021, owing to the cut in allowed returns in the new regulatory regime, in line with Ofwat's final methodology for the 2019 price review.
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.
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