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Pennon could turn on the taps as it eyes use for £3.7bn sales proceeds

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August Graham, PA City Reporter
·2-min read
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Water supplier Pennon has told shareholders they could be in line for a major payout unless it can find a better way to spend the £3.7 billion it made from selling its recycling business.

Pennon said that by June 3 it should be able to give investors clarity on what it will do with the money left from the sale of Viridor.

Bosses think there could be value in snapping up a rival from the UK water sector, and Pennon is continuing to “narrow down its review of potential growth opportunities”.

But if they cannot find a good place to invest a large portion of the money, bosses expect to return a substantial amount of it to shareholders.

Shares dropped by around 3% after the update on Tuesday morning, which also included some details on Pennon’s performance.

“Today’s statement is reassuring but necessarily fails to provide full clarity on how Pennon will go about reinvesting the Viridor proceeds,” said Steve Clayton at investment manager Hargreaves Lansdown.

He added: “But it looks as though, whilst Pennon have not signed a deal yet, they may be reaching for the pen.

“The group say that by their full-year results on June 3 they will either have announced a deal to acquire another UK water company, and Southern Water is the name most often linked here, or they will make a substantial return of capital to their investors.”

Pennon said its early projection for how much money customers would struggle to pay during the pandemic has proved largely accurate. The overall financial impact of Covid-19 has also been in line with expectations.

Its subsidiary South West Water is on track to nearly double its returns, with RORE – base returns on regulated equity – expected to hit 3.9%.

Pennon Water Services, which sells water to businesses, is continuing to attract new customers, the company added.