I know that the mode for these threads tends to be smaller cap stocks but Pennon is looking so good at present I was interested to see if anyone else out there is holding or thinking of buying. The SP is on a fantastic run, it pays a nice fat dividend and even if the water regulators decision on prices was not what any of the water companies were looking for, Pennon is probably the least affected and the most favoured by analysts. Seems to me to be a winning combination!

..Questor share tip: Pennon waste concerns overdone

By Garry White | Telegraph – 11 hours ago


......
This week it was announced that the Prince of Wales, J Sainsbury and financier Jacob Rothschild are investing in the production of energy from organic waste. Pennon already does this.

Pennon 697p -3p Questor says BUY

Anaerobic digestion involves using micro-organisms to convert organic waste into gases such as methane in the absence of oxygen. The gas can then be burnt to produce energy.

However, last week's trading update from Pennon was badly received by the market and the shares fell more than 3pc. The issue was with waste unit Viridor, which operates Pennon's energy from water (EfW) sites.

Pennon notes that Viridor had experienced a reduction in recyclate prices over the winter months. At the same time, a higher level of activity associated with its growing pipeline of long-term projects has led to an increase in bid costs. "Full-year profits are therefore expected to be a little below those of last year," it said.

Questor is relatively unconcerned. Recyclate prices may be falling now, but with landfill taxes on the rise, burying waste is not an option. Recyclate prices fell in the post-Lehman panic, but Viridor was still profitable. Analysts have pointed out that in 2009 recyclate margins only fell to 10pc.

So, Questor reckons that concerns about Viridor have been overdone and the EfW business is going to be a key driver of earnings growth over the next five years. Viridor is planning to build a further 4 plants.

The regulated South West Water side of Pennon's business performed well and the company is on track to meet full-year estimates.

Pennon remains unique among the major water companies because of Viridor and the real growth in earnings the operation is likely to bring.

Pennon also has a relatively generous dividend growth policy. The stated policy is to raise its dividend by the retail price index (RPI) plus four percentage points all the way to 2015. Most other water companies plan to increase the dividend by RPI plus two percentage points. Investors should note RPI is expected to weaken this year.

It should also be noted that the yield on Pennon shares is 3.8pc, which is lower than at other water companies. The current-year yield on United Utilities (Santiago: UTILITIES.SN - news) , for example, is 5.3pc. However, Viridor offers solid growth prospects.

The shares are trading on a March 2012 earnings multiple of 16.7 times, falling to 15.3. Last tipped at 639p in January, the shares are up 9pc. Buy.

..

Final Results.

FINANCIAL HIGHLIGHTS

· Profit before tax up 6.4% to £200.5m

- South West Water up 9.8% to £141.5m

- Viridor down 8.4% to £57.6m

· Earnings per share before deferred tax up 11.8% to 47.3p(1)

· Dividend

- Full year dividend up 7.6% to 26.52p

- Recommended final dividend per share up 6.7% to 18.30p

· Strong liquidity and funding position

- £566m new/refinanced facilities since 31 March 2011

- £1,084m cash and facilities at 31 March 2012

· £257.4m invested in key infrastructure

· Group businesses well positioned for the future

(1) Basic earnings per share were 48.1p

Residual Waste Treatment Services Contract

Pennon Group Plc is pleased to announce that its subsidiary, Viridor (Glasgow) Limited, has signed the 25 year Glasgow City Residual Waste Treatment Services Design, Build, Finance and Operate ('DBFO') contract with Glasgow City Council. The contract requires the recycling and treatment of Glasgow's residual municipal waste through the financing, construction and operation of a new Recycling and Renewable Energy Centre at the Council's own site in the south of the city. The contract requires the treatment of between 175,000 and 200,000 tonnes p.a. of waste and is designed to achieve around 90% landfill diversion.

Ex-divi wed 8th Aug '12 (18.3p)

Over 2%, a possible Divi play.

A recent elevation SP bonus to the Ft100 may mean PNN is now ready for a further dip, so may give this one a miss for now.

I felt about the same, so went elsewhere for divi & growth (BT.A, GNK, BRW). Nevertheless, utilities are a pretty safe haven atm.

Yes agree about Utilities being a relatively safe haven at the mo, but my comments were more of a short term view of PNN as regards recovering after tomorrows Ex. Divi expected drop. Depending on market sentiment recovery may take some time.

Morgan Stanley have reiterated their Equal weight stance and TP of 740p.

Interim Management Statement

Overall financial performance at Pennon Group since 31 March 2012 remains in line with management expectations.

Half Yearly Report

H1 2012/13 OPERATIONAL HIGHLIGHTS


South West Water:

· Strong performance against 2010 - 2015 regulatory contract

· PBT up in spite of atypical weather

· Average funding cost 4.0%

· Strong operational performance

. Preparing for PR14

· Unable to accept Ofwat Section 13 licence proposals but responded constructively on how concerns can be addressed

Looks like these have been replaced by TT. in the FTSE. FTSE 100 Constituent Changes

Back on the up.

Interesting one skinny & I have the ex-divi date as historically 1st week in Feb.

EDIT: ex-divi 30th Jan 2013 (8.76p)

Also slightly worrying is PNN is currently on a Beta of 0.5, which is fine if the markets continue upwards, but..............

Harry - where are you getting the 0.5 from (I have 0.45). Having said that, I was looking more for a capital gain when the regulators walk the line and possible promotion back to the FTSE.

My figure comes from Digitallook.
I should rephrase my comment 'worrying' to read 'disconcerting', as PNN has done the opposite of the UK indices recently. I know it will lag the index but not really quite sure why it has been so comparitively negative. (theoretically it should be 50% less volatile than the market).

Director sell 2,588 @£6.53p

Director/PDMR Shareholding

Interim Management Statement

Bang on the 50 day atm.

SocGen on PNN today:
"While recent press reports have suggested Pennon could be the subject of a potential 775p per share bid approach from the Abu Dhabi Investment Authority (which on our estimates would represent a 23% premium to South West Water’s 2013 adj. RCV), in general the level of bid speculation in the sector has subsided from the last round of United Utilities related bid speculation prevalent in February. Historically Pennon has been viewed as a less likely M&A target given its large non regulated waste activities (Viridor), however the recent press report suggested the Viridor would be subsequently divested. While we note that the separately owned Masdar Capital fund in Abu Dhabi has historically expressed an interest in the UK waste sector2, its funds under management ($540m) are relatively small in comparison to the scale of Viridor (est. £1.5bn EV).
Without existing ownership of a large existing waste management business from which material synergies could be extracted, we would view a SWW / Viridor separation as problematic in the near term given the balance sheet support the Pennon parent company provides (supported by the regulated South West Water activities) in funding Viridor’s Energy From Waste investment programme and the likely loss of £300m of balance sheet “equity” which could result from a change of control induced redemption of the hybrid bond issue.
Although the recent performance of the United Utilities equity price suggests that bid speculation has diminished, we note that UU CDS remains at a near record level (175bps) reflecting debt market concerns regarding a potential leveraged take-out which is not mirrored to the same degree in the equity price (either in the equity or the option implied volatility).
While the United Utilities CDS market has limited liquidity, it is unlikely that this divergent view between the debt market and equity market will be sustained. We believe the current share price does not reflect any bid premium to the estimated fundamental fair value estimate (796p), effectively offering a free call option on any potential M&A activity.