South West Water owner slashes payout by around 30% as new chief executive bets big on network investment.
Pennon Group (LSE: PNN) shares collapsed by as much as 17% after the water company launched a £550m rights issue and cut its dividend to help fund a sharp increase in network investment.
The fully underwritten rights issue, aimed at existing shareholders, will support roughly £1bn of additional spending, while the group also 'rebased' its dividend, with the total payout for the current year falling to about £125m from £138m. Combined with the dilutive effect of the rights issue, that equates to a cut in dividend per share of around 30%, to approximately 18p.
The sell-off is a rare sight for a UK-listed utility, underscoring how acute the pressures have become across the water sector. Income-focused investors, who typically hold utility stocks for reliable dividends, were caught off guard by the scale of the reduction. AJ Bell's Dan Coatsworth described it as 'a blow' for shareholders used to Pennon as a dependable yield play.
The moves come alongside an operational overhaul unveiled by new chief executive Keith Haslett, who said a review of the business had identified areas requiring improvement. The plan includes bringing leakage technicians and other key skills back in-house, centralising asset management, and directing more capital to where it is most needed. Total investment in the regulated water business over the current regulatory period is now expected to reach about £3.6bn, roughly £1bn above the original plan, which Pennon says will lift the value of its regulated asset base by more than 40% over the period.
Pennon said dividends would now grow in line with inflation from this lower base, and that it intends to recover part of the extra investment through Ofwat's cost-change mechanism. Investors will be watching closely to see whether the heavier spending programme can repair operational performance and restore confidence without further strain on the balance sheet.
This report is based on Pennon Group’s announcement and coverage by UK Investor Magazine. Company announcements can be tracked via London Stock Exchange RNS and Investegate, and the full results calendar is worth watching for the next update.
This article is for general information only and does not constitute investment advice or a recommendation to buy or sell any security. Photo: Rose Galloway Green on Unsplash.
Small Cap News covers London’s junior market – AIM, small-cap and growth companies – with concise, sourced reporting on the results, deals and regulatory news that move share prices. We track the stories private investors actually need, from contract wins and drilling updates to fundraises and half-year figures, straight from the market’s own announcements.