Pennon to hold strategic review after strong unit performances

Pennon on Friday said it will conduct a full review of its strategic focus, growth options and capital allocation policy after continued strong performances from its Viridor and South West Water businesses.

The utilities and waste management company said it was on track to meet full year management expectations. It added that a new regulatory delivery period for South West Water influenced its decision to hold the review.

Pennon warned that interim revenues at South West Water would fall to a more normal level after a milder summer compared with hot and dry conditions seen last year.

However, the business remained on track to deliver expenditure outperformance and an enhanced return on regulated equity.

Pennon said it was looking to add two further reprocessing facilities, co-located with its sites in Oxfordshire and Scotland, to the Viridor recycling business.

The current portfolio of 10 operational facilities was performing well, with optimisation and operational ramp-up at Glasgow, Beddington and Dunbar now started.

The construction of a new energy recovery facility in West Sussex was also being planned through Viridor's joint venture with Grundon Waste Management, while the building of a new £65m plastics reprocessing facility in Avonmouth was now underway.

Pennon Group shares were up 0.9% at 799p at 1226 BST.

Russ Mould, investment director at AJ Bell, questioned whether a break-up of the company was on the cards.

"The company has announced a strategic review of the group which one can assume will include a potential demerger of waste recycling business Viridor," he said.

"The growing investor interest in all things ESG-related could see Viridor achieve a much higher valuation as a standalone business. It would provide investors with an alternative way to play the UK recycling industry than simply buying shares in Biffa.

"Viridor works for more than 150 local authorities and major corporate clients as well as over 32,000 customers across the country. It has a network of more than 300 recycling, energy recovery and waste management facilities.

"There is a growing trend for companies to spin off ‘hidden gems’ or underappreciated operations in the hope of creating more value for shareholders. Prudential is about to spin off M&G, Ferguson is going to separate its UK business from the group, and Smiths Group is going to demerge its medical arm."

(Editing by Frank Prenesti)