Pennon Group shares rise after upbeat trading update and outlook

LONDON (ShareCast) - Shares (Berlin: DI6.BE - news) in Pennon Group (Other OTC: PEGRF - news) rose 1% at 839p on Monday after the UK utilities company pleased investors with an upbeat trading update and outlook statement. Pennon said trading remains in line with expectations for its financial year to the end of March. It noted that its South West Water business is performing well and Viridor, its waste management division, is making progress, which leads Pennon to reiterate its dividend growth plans.

"Pennon is pleased to announce a continuation of its current dividend policy of year-on-year growth of 4% above Retail Prices Index inflation to 2019/20," said Pennon. The FTSE 250 utility group added that it said it is well placed to generate increasing operating cashflows over the 2015-2020 regulatory periods.

It said that South West Water is well placed to deliver the 2015-2020 regulatory contract and will have an opportunity to generate returns for shareholders ahead of the assumed returns on equity. It added that Viridor has made good progress on its Energy Recovery Facility energy-from-waste business, with four facilities now on stream and a fifth to be added soon.

The group did however say that South West Water's profits for 2014-15 will be hit by the tariff freeze but Viridor's EBITDA for the period is expected to exceed last year.

"Earnings from operational ERFs are expected to more than offset declines in landfill and recycling. As previously flagged, the downturn in the financial performance of landfill is a result of the prescribed increase in landfill tax, which led to Viridor's strategy of focusing on selected strategic landfill sites," added Pennon.