Market news and an update from water company Pennon.
Market News
Risk assets saw a better start to the fourth quarter after the US government averted a shutdown and China PMI data showed the economy returned to expansion. US and European futures mostly rose, and Treasuries fell. Later, attention will turn to a roundtable discussion involving Jerome Powell. Several Asian markets are closed today, including Hong Kong. The FTSE 100 is currently trading 0.1% higher at 7,616.
The yen weakened and JGB futures trimmed losses after the BOJ said it will conduct an additional bond-buying operation on Wednesday.
Rishi Sunak’s efforts to use this week’s Conservative Party conference to unite his party ahead of a general election next year suffered an early setback when senior Tories called for immediate tax cuts. The PM also faces pressure to withdraw from the European Convention on Human Rights. Today, Jeremy Hunt is set to pledge wage rises for the country's lowest-paid workers while clamping down on welfare payments. Sterling trades at $1.2212 and €1.1538.
The latest data from Nationwide showed UK house prices were flat in September, versus expectations for a 0.4% decline, and down 5.3% year on year.
Brent Crude trades at $92.30 a barrel, while gold remains subdued at $1,844 an ounce.
Source: Bloomberg
Company News
Pennon Group has this morning released a trading update for the six months ended 30 September 2023 and provided an update on its business plan. In response, the shares are up 3% in early trading.
Pennon operates the water supply for the south-west of England and, following the completion of the merger with Bristol Water earlier this year, the supply for the Bristol region. The group is a regulated utility and is currently midway through a regulatory period which runs from 1 April 2020 to 31 March 2025 (known as K7). The group has today submitted its five-year business plan for the period 2025-30 (K8) to industry regulator Ofwat, outlining capital investment of c.£2.8bn in water quality and resilience.
The company has also highlighted that trading in line with management expectations. Financial performance for 2023/24 is expected to be weighted into H2 (to March 2024), reflecting lower power costs, and the realisation of further efficiencies as the group continues to unlock synergies from the integration of Bristol Water and reshape of the organisation for the K8 regulatory period.
The group is on track to deliver significant K7 environmental investment plan with capex of over £400m for 2023/24. The investment plans to further diversify water resources and boost resilience, including the development of Cornwall’s first de-salination facility, are ongoing and progressing well.
In the current regulatory period to 2023/24, the group continues to anticipate a cumulative doubling of base returns on regulated equity (RORE), with the structure of its financing portfolio driving significant financial outperformance.
Given the current macro-environment, the group now anticipates higher regulated capital value (RCV) growth reflecting updated forward assumptions on inflation. Factoring in this, and all adjustments, management anticipates an opening RCV of around £5.4bn at the beginning of the next regulatory period (2025-30). This £200m additional value on previous guidance would broadly equate to a 2.5% reduction in gearing, and as the industry moves into K8 the company is confident its financial gearing will remain within its well-established range of 55%-65%.
The group’s dividend policy is to grow the payout by 2% above CPIH inflation each year through to 2025. In the latest financial year to 31 March 2023, the dividend was raised by 10.9% to 42.73p, a yield of 7%.
The shares have been weak following the move higher in bond yields and the concerns over elevated political risk surrounding the industry.
Source: Bloomberg