Investors and analysts are waiting to see how United Utilities Group PLC (LSE:UU.) is performing in the wake of last year’s pandemic disruption.
In a preview, analyst Laura Hoy at Hargreaves Lansdown evidently sees a ‘glass half full’ recovery for the water utility, expecting post-pandemic life to be "a good thing" for the FTSE 100 group.
“Businesses reopening should boost consumption, but some of the added household demand should also stick around as working from home continues.”
“At the half-year results we’ll get some idea of how the two are balancing out and whether the group can expect elevated overall demand from here on out.”
Hoy noted that UU’s management had forecast 4% revenue growth, despite lower prices that result from regulatory caps which prevent the company passing inflationary pressures to customers until next year.
“At the half year we’ll get a sense of how much these factors impacted profits—at last check the group was still expecting operating profit growth, with cost-saving initiatives offsetting the inflationary issues,” the analyst added.
“Finally, debt will be one to watch as the group continues to make necessary infrastructure investments. As long as profit growth is also on the up this isn’t overly concerning, but it’s something to keep an eye on, particularly if inflationary pressure was stronger than anticipated.”
Investors may, meanwhile, be somewhat guarded in the run up to Wednesday’s results – not least because of Severn Trent (LSE:SVT)’s surprise £250mln fundraise (earmarked for the clean-up of rivers in the Midlands and stop the flooding of overfull sewers).
Infrastructure and maintenance are, of course, a perennial focal point for investors in the utilities so shareholders in UU and SVT will no doubt keep a keen eye on liquidity and balance sheet.
Severn Trent (LSE:SVT)'s half-year numbers are due on Tuesday.
Investors in both companies may have recently been worried after the Environment Agency and water regulator Ofwat this week launched an investigation into illegal releases of untreated sewage into rivers.
The investigation will be carried out into around a third of waste treatment plants in England and Wales, with any company caught breaching their legal permits liable to enforcement action, including fines of up to 10% of annual turnover for civil cases, or unlimited fines in the event of any criminal proceedings.
Potentially illegal spills were found by the EA at a number of sewage treatment works, with several water companies admitting many of their plants may comply with the permits issued to allow them to release raw sewage in “exceptional circumstances”.
Emma Howard Boyd, EA chair, said: “Any water companies in breach of their permits are acting illegally. This is a major issue of public trust. Water company boards must certify every year that they have adequate resources to fulfil their regulated activities.”
This comes just weeks after the government's U-turn over sewage made all the newspaper headlines, with a new amendment to environmental laws that will force water companies to reduce the impact of sewage discharges.
The likes of UU and SVT will be required by law to show a reduction in sewage overspills over the next five years.