United Utilities PLC (LON:UU.) shares picked up after the water company posted rising profits on the back of higher regulatory incentives in the first half of the year.
The UK’s largest listed water company, which controls water and wastewater in the north-west of England, reported underlying operating profits up 6.5% to £392mln in the six months to the end of September.
READ: London-listed water firms could be at risk of losing their dividend perk
The company said in an update on Wednesday that this was driven partly by its outperformance on its outcome delivery incentives (ODIs) set by regulator Ofwat, which meant it has so far raked in an extra £21mln for the 2015-2020 period, with hopes to take this to £50mln next year.
Ofwat set out new demands and incentives in July for water companies to pay their debts faster, become more efficient and treat customers better.
United's profits were also helped by 2% higher revenues of £936mln, but the coming year's taps have been tightened Ofwat has required United to reduce its revenues by £14mln in 2019/20, reflecting cheaper bills for customers.
Nevertheless, statutory pre-tax profits slumped 25% to £195mln, which it said was down to a fair value loss on its derivatives and debt, which were hit by a decrease in market interest rates.
Utilities stocks tend to be investor favourites because of their high dividends, and United lived up to expectations by announcing a half-year dividend of 14.2p per ordinary share, an increase of 3.2%.
There’s a busy month ahead for utilities, with Ofwat’s final price determination due on 16 December, following a fraught general election four days earlier, which sees opposition party Labour campaigning to renationalise water.
Ofwat could announce further “financial resilience” demands on water firms, which have already seen companies barred from making dividend payments unless they can maintain an investment grade credit rating.
United’s shares traded 1% higher at 886.8p on Wednesday morning.