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1. Company Snapshot

1.a. Company Description

Pennon Group Plc provides clean water and wastewater services in the United Kingdom.It provides water and wastewater services for customers in Cornwall, Devon, and parts of Dorset and Somerset; water-only services in the areas of Dorset, Hampshire, and Wiltshire; and water and wastewater retail services to non-household customers in Great Britain.The company also offers regulated water to approximately 1.2 million customers in the Bristol region.


It serves approximately 50 million household and non-household customers.The company was incorporated in 1989 and is based in Exeter, the United Kingdom.

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1.b. Last Insights on PNN

Pennon Group Plc's recent performance has been positively influenced by strategic leadership appointments. The appointment of Keith Haslett as the next chief executive, currently leading Affinity Water, brings fresh expertise to drive growth. This move signals stability and a forward-thinking approach. Although no recent earnings release data is available, the company's proactive leadership succession planning may instill investor confidence. According to recent news, this appointment is set to take effect next year, providing ample time for a seamless transition.

1.c. Company Highlights

2. Pennon Group's Strong H1 Results Driven by Regulatory Reset and Operational Successes

Pennon Group reported a robust start to the UK regulatory period, with revenues increasing by 25% year-on-year to £658 million, driven by higher tariffs from the regulatory reset and increased customer consumption. The company's operating profit more than doubled, with EBITDA showing a step change. Underlying profit before tax was £65.9 million, compared to an underlying loss of £18.6 million in the prior year. Adjusted basic earnings per share increased to 14p per share, beating analyst estimates of 13.72p. The actual EPS came out at 0.139, slightly higher than the estimated 0.1372.

Publication Date: Nov -29

📋 Highlights
  • Strong Revenue Growth:: Revenues surged 25% YoY to £658 million, driven by regulatory tariff increases and higher customer consumption.
  • Profitability Surge:: Operating profit more than doubled, with underlying pre-tax profit jumping to £65.9 million from a £18.6 million loss in the prior year.
  • Storm Overflow Reduction:: Achieved a 45% decline in storm overflow spills, avoiding 6,000 incidents in H1 2025-26.
  • Capital Investment Progress:: £305 million in H1 capital expenditure, with £279 million allocated to the Water Group and £25 million to renewables.
  • Net-Zero Advancement:: £20 million invested in CREWW and plans to meet 40% energy self-sufficiency by 2030, aligning with net-zero targets.

Operational Highlights and Strategic Priorities

The company has seen operational successes across its four strategic priorities, including providing safe, clean drinking water, tackling storm overflows and pollution, driving environmental gains, and supporting customers. Pennon Group has reduced storm overflow spills by 45% and avoided around 6,000 spills in the first half of 2025-26. The company has also made progress on its net-zero targets, with a £20 million investment in CREWW and plans to deliver 40% of its energy requirements by 2030.

Financial Performance and Outlook

Pennon has had a robust start to the new regulatory period, K8, with a strong return to profitability and notable operational successes. The company expects revenue to reflect normalized demand, with EBITDA anticipated to increase by around 60% year-on-year. Analysts estimate next year's revenue growth at 24.0%. The company's gearing policy is 55-65%, and it has a strong balance sheet, with gearing at 60%.

Valuation and Dividend Yield

The current valuation metrics indicate that the stock is trading at a P/E Ratio of -54.15, P/B Ratio of 1.65, and Dividend Yield of 6.19%. The EV/EBITDA is 31.08, suggesting a relatively high valuation. However, the dividend yield is attractive, and the company's commitment to delivering stable returns on investment is positive.

Transition and Future Plans

The company is undergoing a CEO transition, with Susan Davy handing over to Keith Haslett, who will start in 2026. Pennon has a strong executive team in place, and Susan Davy will continue to support the business during the transition. The company is well-positioned to take advantage of reopener opportunities, with a potential to accelerate more investment on the horizon.

3. NewsRoom

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South West Water owner names next chief executive

Oct -02

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After a year of 6.1% returns, Pennon Group Plc's (LON:PNN) share price drop last week may have less of an impact on institutional investors

Aug -18

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Pennon Group's (LON:PNN) Dividend Will Be £0.1943

Jul -22

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Boss of South West Water owner Pennon to retire

Jul -11

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Pennon Group's (LON:PNN) Dividend Will Be £0.1943

Jun -27

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South West Water owner Pennon says losses deepened after Devon parasite outbreak

Jun -03

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Stocks to watch this week: Broadcom, Lululemon, British American Tobacco, Dr Martens and Rémy Cointreau

May -30

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Shareholders in Pennon Group (LON:PNN) are in the red if they invested five years ago

Apr -07

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (9.09%)

6. Segments

Water

Expected Growth: 8%

Pennon Group Plc's water segment growth is driven by increasing demand for water recycling and wastewater management, regulatory support for infrastructure investments, and a growing focus on environmental sustainability. Additionally, the company's strategic acquisitions and partnerships have expanded its customer base and enhanced its service offerings, contributing to the 8% growth rate.

Non-household Retail

Expected Growth: 12%

Pennon Group Plc's Non-household Retail segment growth of 12% is driven by increasing water demand from commercial and industrial customers, expansion into new regions, and strategic acquisitions. Additionally, investments in infrastructure and technology have improved operational efficiency, enabling the company to pass cost savings to customers, thereby driving growth.

Other

Expected Growth: 9%

Pennon Group Plc's 9% growth in 'Other' segment is driven by increasing adoption of renewable energy solutions, government incentives for sustainable practices, and strategic acquisitions expanding its waste management capabilities, resulting in higher revenue from environmental services and infrastructure projects.

7. Detailed Products

Water and Waste Water Services

Pennon Group Plc provides water and waste water services to households and businesses through its subsidiary, South West Water.

Waste Management

Pennon Group Plc provides waste management services through its subsidiary, Viridor, offering recycling, composting, and energy-from-waste solutions.

Energy Generation

Pennon Group Plc generates energy from waste through its energy-from-waste facilities, providing renewable energy to the national grid.

Recycling and Composting

Pennon Group Plc provides recycling and composting services through its subsidiary, Viridor, offering a range of recycling solutions for households and businesses.

8. Pennon Group Plc's Porter Forces

Forces Ranking

Threat Of Substitutes

Pennon Group Plc operates in the waste management industry, which has few substitutes. However, the increasing popularity of recycling and waste reduction initiatives may pose a moderate threat to the company's operations.

Bargaining Power Of Customers

Pennon Group Plc's customers are largely municipalities and industrial clients, who have limited bargaining power due to the company's dominant market position and specialized services.

Bargaining Power Of Suppliers

Pennon Group Plc relies on a network of suppliers for fuel, equipment, and other inputs. While suppliers have some bargaining power, the company's scale and diversification mitigate this risk.

Threat Of New Entrants

The waste management industry has high barriers to entry, including significant capital requirements and regulatory hurdles, making it difficult for new entrants to challenge Pennon Group Plc's market position.

Intensity Of Rivalry

The waste management industry is highly competitive, with several established players competing for market share. Pennon Group Plc faces intense rivalry from competitors, which may impact its pricing power and market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 71.47%
Debt Cost 4.77%
Equity Weight 28.53%
Equity Cost 5.35%
WACC 4.94%
Leverage 250.55%

11. Quality Control: Pennon Group Plc passed 0 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Iren

A-Score: 6.7/10

Value: 7.1

Growth: 5.6

Quality: 3.4

Yield: 7.5

Momentum: 8.0

Volatility: 8.7

1-Year Total Return ->

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Stock-Card
ACEA

A-Score: 6.6/10

Value: 5.8

Growth: 5.6

Quality: 4.9

Yield: 8.1

Momentum: 7.0

Volatility: 8.3

1-Year Total Return ->

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Stock-Card
A2A

A-Score: 6.6/10

Value: 7.6

Growth: 6.4

Quality: 3.8

Yield: 7.5

Momentum: 5.0

Volatility: 9.0

1-Year Total Return ->

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Stock-Card
Redeia

A-Score: 5.5/10

Value: 4.1

Growth: 2.1

Quality: 5.2

Yield: 7.5

Momentum: 4.0

Volatility: 10.0

1-Year Total Return ->

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Stock-Card
Severn Trent

A-Score: 5.2/10

Value: 3.3

Growth: 3.7

Quality: 3.2

Yield: 6.9

Momentum: 5.0

Volatility: 9.0

1-Year Total Return ->

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Stock-Card
Pennon

A-Score: 4.2/10

Value: 5.4

Growth: 2.2

Quality: 2.4

Yield: 9.4

Momentum: 1.0

Volatility: 5.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

5.4$

Current Price

5.4$

Potential

-0.00%

Expected Cash-Flows