Pennon turns on the taps with £425m Bristol Water deal
Utilities firm Pennon this morning announced that it had bought Bristol Water for £425m as it consolidates its position as the south-west’s largest water company.
Alongside the deal the FTSE 100 firm said that it would pay out a special dividend of £1.5bn to shareholders, as well as kick off a £400m share buyback.
Shares in the firm rose 2.2 per cent as markets opened today.
The announcements came as the company reported a 14.2 per cent slide in underlying profit before tax for the full year.
Pennon said that it had recorded profit of £157m, down from £183m the year before. It said that this was in line with expectations.
The purchase of Bristol Water, which supplies about half a million homes and businesses across the Bristol and north Somerset areas, comes after the sale of waste management firm Viridor for £3.7bn last year.
That deal left South West Water, with 1.7m customers, at the core of Pennon’s business, and the Bristol Water acquisition will build on that, chief executive Susan Davy said:
“We have ensured Pennon is well positioned for the future, reinvesting for growth, and retaining sufficient funds to drive further value.
“The acquisition of Bristol Water announced today, is the next step in the growth of the Group, building on significant experience as a leader and consolidator in the industry.
“This latest acquisition, building on a strong heritage and history, firmly cements Pennon as one of the leading UK water and waste water companies”, she added.
William Ryder, equity analyst at Hargreaves Lansdown, said: “Pennon is a very different business following the Viridor sale. Shareholders can expect a bumper cash payment and some share buybacks, but the group has also paid off a decent chunk of its debt and is buying Bristol Water for £425m.
“While the group was net cash at year end, it will return to a net debt position once the special dividend, share buybacks and acquisition are completed.
“Overall, we think the portfolio changes make sense. Management has had significant flexibility following the sale, and the acquisition is a sensible one.
“It’s positive to see so much cash getting returned to shareholders – there’s always a temptation for management to keep cash in the business where possible, so a commitment to shareholder returns is always good to see.”