Pennon has posted 2015/16 earnings in line with market expectations for EBITDA and net profit before tax, but higher than our EBITDA forecast. The fairly good performance (+1.1% EBITDA growth) was only driven by the rise in the Viridor asset base and the Bournemouth acquisition. Excluding these factors, we estimate the group’s core business operating profit would have fallen 4.6% YoY compared with the decline of just 3.6% posted by Severn Trent yesterday. At the current share price, we continue to assume the premium paid on Water RAB is too high and reduces the risk of a takeover bid. Sell rating confirmed with FV @ 825p.
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