New deal boosts United Utilities’ coffers

Underlying operating profit at United Utilities (UU.) rose by two-thirds to £562mn for the half-year, driven by the entry into a new five-year regulatory cycle in which water companies have been allowed to raise prices to improve services.

Like its competitors, United Utilities needs to do better. Last month, the Environment Agency published its annual performance assessment for the 9 water and sewerage companies in England and gave them the lowest collective ranking on record. Serious pollution incidents were up 60 per cent last year, and although water companies talk a lot about their focus on environmental improvements, “the results are not visible in the data”, Environment Agency chair Alan Lovell said.

Although United Utilities hailed its position as “the second highest ranked in the sector”, it is a hollow boast, given that its rating (in a four-star system) was halved to just two stars.

UU’s chief executive Lou Beardmore argued that it is using the extra money it receives (net regulatory capex climbed by 22 per cent) to fix things. Spills from storm overflows were down 40 per cent in the period, and it fixed 30 per cent more leaks. It plans to spend about £9bn in capex over the next five years – £1.5bn of this in the current year.

Modelling for other inputs, United Utilities has said it expects to generate earnings per share of 100p for the current year, which is roughly where analysts’ consensus lay.

The shares are priced at 12 times forecast earnings, which is well below long-run averages, but is a fair reflection of the fact that they will have to invest more heavily in ongoing improvements. Hold.

Last IC view: Hold, 1,096p, 16 May 2025