Broker snap: Hold fire on Pennon

24th Nov 2009 12:50

Broker Charles Stanley was reassured by half year results from Pennon last week, but as with all UK water companies, Thursday's Ofwat's final determination for the next five-year regulatory period 2010-15 is likely to have a bearing on its future prospects. The broker reckons Pennon remains 'relatively well placed' compared to sector peers United Utilities and Severn Trent, 'which were placed on credit watch negative following a tough draft determination (some analysts anticipate c.20% dividend cuts at SVT and UU or equity issues).'Pennon's total gross debt stood at £2,326m at the end of September, of which finance leasing remains the largest component at £1,225m, Charles Stanley notes. Net interest payable fell to £35.5m from £46.7m a year earlier, on a reduction in the average rate of interest to 3.7%, versus 5.2% last year.Although the stock market has recovered strongly since March, defensive stocks such as Pennon have missed out on much of the rally - the shares are down 2% so far in 2009, Charles Stanley analyst Tina Cook notes.The broker is reluctant to commit too heavily to the shares ahead of Thursday's Ofwat ruling and retains its 'hold' recommendation.