Financial Trading Blog
Stock of the day 25/09/2015 – Pennon Group PLC
After opening 2015 at an all-time high of £9.24 Pennon’s direction has largely been downwards. A solid January saw the stock just about keep its head above the £9 mark; however, a sharp drop across the first half of February pushed Pennon to the £8.20s, only for a brief moment of growth to return as it crawled back to £8.60 by the end of the month.
(Source: IT-Finance.com 25/09/2015)
Another precipitous fall at the start of March then sent the stock to a 5(ish) month low of £7.94, before the confirmation of a continued dividend policy of 4% above RPI inflation year-on-year growth in its first quarter trading statement helped put Pennon on a slightly healthier path. Whilst choppy, between the start of April and the UK election results in May Pennon managed to climb back towards the £9 mark, hitting a 3 month high of £8.96 in the aftermath of the Tory victory, with that period including news of the £100 million acquisition of Bournemouth Water Investments.
Its preliminary full year results, released towards the end of May were promising, with a 5% jump in its dividend to 31.8p joined by a 1.6% rise in pre-tax profits to £210.7 million. This growth was aided by some robust figures from its subsidiaries, with recycling company Viridor posting a 5.4% increase in EBITDA to £80.4 million whilst South West Water saw a 3.3% lift in pre-tax profit to £167.9 million.
Yet it appears that investors were spooked by the company’s increasing growth-dependence on Viridor, and after the results were released a sustained period of losses set in for Pennon; from £8.80 on the day of its full year release, the stock fell all the way to a 19 month low of £7.10 by September 23rd. A ‘Buy’ rating from Deutsche Bank on Friday, however, did help lift the stock away from this low, and Pennon Group is now trading at £7.50 (IT-Finance.com, 25/09/2015).
Pennon Group has a consensus rating of ‘Hold’ alongside an average target price of £8.44.
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