Pennon Plc shares slipped 1.60% to 499.40 pence following full-year results for the 12 months ended March 31. While headline accounts showed a return to statutory profit, market reaction centred on forward guidance that fell short of some expectations and on lingering regulatory exposures.
The company reported a statutory profit before tax of £114.4 million, reversing a prior-year loss of £72.7 million. Underlying EBITDA rose 55% to £519.2 million, aided by a 24.6% increase in regulated water revenues. Adjusted earnings per share came in at 28.3 pence, beating a company-compiled consensus of 27 pence by around 4%.
Despite the profit recovery, forward-looking commentary was more cautious. Management guided underlying EBITDA growth of 5%-10% for 2026/27. Morgan Stanley notes that this guidance sits about 9% below consensus at the EBITDA level and roughly 15% below consensus at the net income line.
Management also signalled an expected rise in net interest costs of 10%-15% as debt increases to finance capital expenditure forecast at £620 million- £700 million. The group reiterated it expects to remain in a net operational delivery incentive - ODI - penalty position in 2026/27, extending a £42.0 million ODI penalty recognised in the current year.
Regulatory matters added to investor concern. South West Water has been fined by a court after a guilty plea related to the 2024 Brixham cryptosporidium outbreak. The group recorded £6.7 million in non-underlying costs associated with that settlement and with enforcement undertakings agreed with Ofwat in relation to separate wastewater investigations. Sentencing on pollution charges at six sites remains scheduled for July 2026.
Newly appointed Chief Executive Keith Haslett, who joined the company on April 1, 2026, acknowledged the work required to lift standards, saying: "It is clear that there are areas where operational discipline and capital delivery will be important to meet the standards we aspire to achieve in the future." His comment underscores management's focus on operational improvement and capital execution as the group navigates the regulatory and delivery challenges.
Investment banks anticipated an immediate negative market reaction to the guidance and regulatory headlines but suggested any pullback could be limited. Morgan Stanley, which maintains an "overweight" rating and a 680 pence price target on Pennon, expected an initial small negative response. The broker also pointed to the EPS beat and the potential for a positive impact from the group's £250 million re-opener submission to Ofwat as factors that could support a recovery in sentiment.
Market and sector implications
- Utilities and regulated water operators are directly affected by penalties and regulatory enforcement outcomes.
- Investor attention is likely to remain on funding needs, interest cost trajectory and capital delivery performance across the infrastructure and utilities sector.