South West Water owner steps up share buy-back
UTILITIES giant Pennon Group has begun the second phase of a £400 million share buyback programme just days after announcing demand for water had increased during the Covid pandemic and boosted earnings.
The Exeter-headquartered business, named by the Western Morning News as the biggest firm in the South West, initiated the first phase of a share repurchase scheme, of up to £400 million, in July this year. That concluded in September with about £60 million spent on the repurchase of equity in a bid to reduce share capital.
The company, which is the parent of South West Water and Bristol Water, has now begun a second phase, and aims to buy up another £60 million of its own shares by November 26.
Under an agreement with Morgan Stanley, the bank can purchase ordinary Pennon shares at 61.05 pence each for an aggregate purchase price no greater than £60 Morgan Stanley, in this phase, and simultaneously sell them to the company. All shares repurchased will be cancelled.
A statement to investors said: “The first phase of the programme commenced on July 23 and concluded on September 10, with about £60 Morgan Stanley deployed.
“Following on from this, Pennon is initiating the second phase of the programme and has entered into a non-discretionary agreement with Morgan Stanley to enable it, acting as principal, to purchase ordinary shares of 61.05 pence each in the share capital of Pennon for an aggregate purchase price of no greater than £60 Morgan Stanley and the simultaneous on-sale of such shares by Morgan Stanley to Pennon.
“This agreement commences on September 30 and share purchase activity pursuant to the agreement is expected to end no later than November 26. Morgan Stanley will make trading decisions in relation to Pennon shares purchased under the programme independently of, and uninfluenced by, Pennon. All shares repurchased will be cancelled.”
The maximum number of shares that can be repurchased under the buy-back programme is 42,183,689, which is the maximum allowed by shareholders at Pennon’s annual meeting in July.
In June, Pennon announced its plan to return capital to shareholders by way of a £1.5 billion special dividend, paid on July 16, and the potential £400 million on-market share buy-back programme of its ordinary shares.
Share buy-back schemes reduce the number of shares and inflate dividends. They can also hike share prices and show to investors a firm has plenty of cash.
Pennon’s sale of waste management firm Viridor netted it a profit of £1.7 billion. It splashed £814 million on buying Bristol Water, though due to taking on debt the equity value of the sale was £425 million, and repaid £1.1 billion of its debts.
It then embarked on the share repurchase, for which future phases are expected to be announced, but did warn the programme will be subject to review should further opportunities to buy another UK water company arise.
Announcing the company’s annual results in June, Pennon said the share buy-back would provide it with “ongoing financial flexibility”, but it could be halted. It has confirmed it is on the look-out for more acquisitions.