United Utilities – Inflation, Legislation Threaten Profits

Published on

United Utilities Group PLC (LON:UU)’s revenue in the first six months of the year is forecast to rise 4% compared to last year. This reflects higher consumption as more people work from home and businesses resume operations following lockdowns, only partially offset by regulatory revenue reduction.

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q2 2021 hedge fund letters, conferences and more

Coupled with cost-saving initiatives this should lift underlying operating profit, though it will be somewhat offset by inflationary pressure. This doesn’t include a £380m one-time tax charge due to new tax legislation.

The group expects a small increase to net debt, reflecting increased infrastructure investments.

The shares were broadly flat following the announcement.

United Utilities Is On A Steady Course

Laura Hoy, Equity Analyst at Hargreaves Lansdown:

“United Utilities is keeping a steady course despite increasing headwinds. The group flagged inflationary pressure as a reason for rising costs and debt repayments. However those issues are expected to be mostly offset by an uplift in revenue as working from home and the reopening of many businesses come together to increase demand. The question now is whether this surge in demand is a permanent one and if inflation will continue to weigh on results or dissipate as expected.

We suspect the rising costs are here to stay in the near-term, so UU will have to wait out the storm a bit longer. With a working from home hybrid model seemingly the new normal, an increase in demand could also stick around to see UU through a period of temporary inflation.

The group’s been dealt another blow by the tax man, with a £380m charge related to the corporate tax hike to take a bite out of profits this year. This should be a one-time expense that doesn’t change the group’s underlying growth story. But it’s a sign of what’s to come for the rest of the UK businesses as they prepare to pay out a quarter of their income in 2023.“

About Hargreaves Lansdown

Over 1.64 million clients trust us with £135.5 billion (as at 30 June 2021), making us the UK’s largest digital wealth management service. More than 98% of client activity is done through our digital channels and over 600,000 access our mobile app each month.