United Utilities Group Plc – Value Analysis (FRANKFURT:UUEC) : December 26, 2017

Capitalcube gives United Utilities Group Plc a score of 41.

Our analysis is based on comparing United Utilities Group Plc with the following peers – Pennon Group Plc, Severn Trent Plc, Veolia Environnement SA, Aqua America, Inc., Athens Water Supply and Sewerage Company S.A., Consolidated Water Co. Ltd., Guangdong Investment Limited and SUEZ SA (3PNA-DE, SVT1-DE, VVD-DE, A2A-DE, EYDAP-GR, CW2-DE, GUG-DE and SEV-FR).

Investment Outlook

United Utilities Group Plc has a fundamental score of 41 and has a relative valuation of NEUTRAL.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance over the last year is in contrast with the more recent outperformance.
  • It currently trades at a Price/Book ratio of (2.01).
  • We classify UUEC-DE as Harvesting because of the market’s relatively low growth expectations despite its relatively high returns.
  • UUEC-DE‘s relatively high profit margins are burdened by relative asset inefficiency.
  • Changes in annual earnings are in line with its chosen peers but lags in terms of revenue, implying the company is cost conscious and selective about spending for growth.
  • UUEC-DE‘s return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.
  • The company’s relatively high pre-tax margin suggests tight control on operating costs versus peers.
  • UUEC-DE‘s revenues have grown more slowly than the peer median over the last few years, which combined with the stock price’s relatively low P/E ratio suggests substandard growth expectations relative to peers.
  • The company’s capital investment seems appropriate for a business with peer median returns.
  • UUEC-DE seems to be constrained by the current level of debt.

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Leverage & Liquidity

UUEC-DE is debt-constrained.

  • With debt at a relatively high 53.38% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 48.67%), and interest coverage level of 2.33x, UUEC-DE seems debt-constrained.
  • Of the 8 chosen peers for the company, only 7 of the stocks have an outstanding debt balance. Companies with no debt include EYDAP-GR.

UUEC-DE has maintained its relatively high leverage profile from the prior year-end.

  • UUEC-DE‘s interest coverage is its lowest over the last four years and compares to a high of 2.91x in 2015.
  • Though its interest coverage has remained relatively stable at 2.33x compared to 2016, its peer median has increased to 3.77x from 2.91x during this period.
  • Interest coverage fell 1.21 points relative to peers. It is also below the 2.50x coverage benchmark unlike the peer median.
  • UUEC-DE‘s debt-EV is greater than (but within one standard deviation of) its four-year average debt-EV of 52.63%.
  • Though its debt-EV has remained relatively stable at 53.38% compared to 2016, its peer median has decreased to 48.67% from 49.26% during this period.
  • Relative to peers, debt-EV rose 0.52 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Pennon Group Plc 53.94 1.93 3.62 9.88
Severn Trent Plc 48.67 0.67 1.86 11.44
Veolia Environnement SA 70.5 1.02 4.28 13.68
Aqua America, Inc. 26.24 0.55 3.77 20.03
Athens Water Supply and Sewerage Company S.A. 0 6.82 No interest exp 999
Consolidated Water Co. Ltd. 0.26 9.4 291.87 401.48
Guangdong Investment Limited 8.79 2.34 45.45 89.15
SUEZ SA 63.24 1.14 2.56 12.92
United Utilities Group PLC 53.38 0.72 2.33 10.87
Peer Median 48.67 1.14 3.77 13.68
Best In Class 0.26 9.4 No interest exp 999

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Company Profile

United Utilities Group Plc provides water and sewage services. It collects water from catchment land and involves in property management services. The company also offers comprising waste to energy consultancy; engineering advisory services on design, build, and operation of on-site treatment plants; and rainwater harvesting and greywater recycling services. It also extracts water from Lake Vyrnwy in Wales for customers in Merseyside and Cheshire and also from River Dee, boreholes and streams. The company was founded on April 1, 1989 and is headquartered in Warrington, the United Kingdom.

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