Questor share tip: Pennon boosted by Viridor

Utility group Pennon posted an excellent set of numbers yesterday. Questor says buy.

Pennon
663p +7
Questor says BUY

The owner of South West Water and Viridor, the waste disposal and recycling group, said revenues had rise to £1.16bn from £1.07bn and pre-tax profits rose 1.5pc to £188.5m.

This is good news because this is the first year of the new five-year period where the regulator has lowered the allowed return of water companies. Cost cutting and Viridor contributed to this performance.

Viridor, which has some energy from waste and recycling operations, saw profits rise 14pc. There is plenty of scope for increasing this part of its operation as the UK has to reduce landfill disposal significantly over the next few years.

Pennon's full-year dividend was raised by 9.3pc to 24.65p, with the final payment of 17.15p being made on August 12. This is in line with its previously announced policy to grow the payout by 4pc above inflation to the year ending March 2015. The current prospective yield is 4pc, rising to 4.3pc next year.

The shares are up 52pc since they were recommended on February 13, 2009, compared with a market up 40pc.

Trading on a March 2012 earnings multiple of 16, falling top 14.4 next year, the shares remain a buy for income seekers.