GS Utilities Daily Pennon Group Strategic update set to address leverage concerns

Equity Research 9 September 2026 | 8:52AM CEST

GS Utilities Daily: Pennon Group: Strategic update set to address leverage concerns; returns will likely take time; remain Neutral // Orsted

Alberto Gandolfi | Goldman Sachs Bank Europe SE - Milan branch

Ajay Patel | Goldman Sachs International

Mafalda Pombeiro | Goldman Sachs International

Dhwani Khenwar | Goldman Sachs India SPL

Lawrence Lavizani | Goldman Sachs International

Liam Brueckner | Goldman Sachs International

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Pennon Group: Strategic update set to address leverage concerns; returns will likely take time; remain Neutral

Since the start of 2025, Pennon’s shares have underperformed those of its listed peers by over 20%, with the company trading at modest discount to its 2030E RCV. This is the lowest valuation among the listed UK water stocks. Alongside recent guidance downgrades and lower asset growth, we ascribe its lower valuation to higher leverage, lower returns on regulated equity and uncertainty over the likelihood/scale of any pending fines at South West Water. Pennon’s new CEO took up his role on April 1, 2026. Given his background in operational delivery, we see investor focus moving to Pennon’s strategic update later this month. We see this as the next catalyst, with investors looking for signs that a return recovery could be in sight. Additionally, we expect an update on capital allocation and the overall leverage position over the remainder of AMP 8. The headwinds that Pennon has faced over the last 12-18 months have set back its returns recovery. We see scope for the company to target a modestly higher 9%-10% nominal return on regulated equity over AMP 8 (versus the prior 7% real target): while underlying performance has deteriorated, inflation has acted as a partial offset, and leverage levels could be addressed through asset disposals or capital raising. We remain Neutral rated seeing better value elsewhere. More here.

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