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United Utilities Group

LSE:UU.
Snowflake Description

Average dividend payer and fair value.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
UU.
LSE
£6B
Market Cap
Water Utilities
Company description

United Utilities Group PLC provides water and wastewater services in the United Kingdom. More info.


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3 Month History
UU.
Industry
5yr Volatility vs Market

Value

 Is United Utilities Group undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of United Utilities Group to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of United Utilities Group is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for United Utilities Group's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are United Utilities Group's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Good value based on earnings compared to the Utilities industry average.
  • Good value based on earnings compared to the overall market.
Price based on expected Growth
Does United Utilities Group's expected growth come at a high price?
  • No forecast or negative expected growth next year.
Price based on value of assets
What value do investors place on United Utilities Group's assets?
  • Good value based on assets compared to the Utilities industry average.
X
Value checks
We assess United Utilities Group's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Utilities industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Utilities industry average (and greater than 0)? (1 check)
  5. United Utilities Group has a total score of 3/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (-23.59%).

    Full details on the Value part of the Simply Wall St company analysis model.
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Discounted cash flow (Free cash flow to Equity)

The calculations below outline how an intrinsic value for United Utilities Group is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
£1,093

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = £414 × (1 + 1.2%) ÷ (8.23% – 1.2%)

Terminal value based on the Perpetuity Method where growth (g) = 1.2%:
£5,930

Present value of terminal value:
£3,992

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value

Value = Total value / Shares Outstanding (£5,085 / 693)

Value per share:
£7.34

Current discount (share price of £8.63): -18%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 8.23% = 1.17% + (0.8 * 8.83%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

0.627 = 0.318 (1 + (1- 21%) (123.48%))

Levered Beta used in calculation = 0.8



Assumptions
  1. The risk free rate of 1.17% is from the 10 year government bond rate in GB.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is United Utilities Group expected to perform in the next 1 to 3 years based on estimates from 12 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    -8%
    Expected earnings growth over 3 years.
    Future Earnings growth analysis
    Is United Utilities Group expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are United Utilities Group's annual earnings growth expected to exceed 1.8% over the next 3 years?

    • Earnings are expected to decrease over the next year.
    • Earnings are expected to decrease over the next 3 years.
    1 & 3 year estimated growth in earnings
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow
    • Profit
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • United Utilities Group is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.

    Improvement & Relative to industry
    • Expected to be less than the Utilities industry average.
    • An improvement in United Utilities Group's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess United Utilities Group's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    United Utilities Group has a total score of 0/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has United Utilities Group performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare United Utilities Group's growth in the last year to its industry (Utilities).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • United Utilities Group's earnings growth has not matched the industry average in the past year.
    • United Utilities Group's 1 year earnings growth exceeds its 5 year annual average (9.2% vs 2.6%).
    • United Utilities Group has improved earnings in the past 5 years.
    Profit History
    United Utilities Group's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Poor return on shareholders funds (ROE) last year.
    • United Utilities Group performed worse than the Utilities industry average based on return on assets (ROA) last year.
    • Performance based on revenue producing assets (ROCE) has improved significantly over 3 years.
    X
    Past performance checks
    We assess United Utilities Group's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Utilities industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    United Utilities Group has a total score of 3/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is United Utilities Group's financial health and their level of debt?

    A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

    The boxes below represent the relative size of what makes up United Utilities Group's finances.

    The net worth of a company is the difference between its assets and liabilities.
    Net Worth
    • United Utilities Group short term (1 year) commitments are greater than its holdings of cash and other short term assets.
    • United Utilities Group's long term commitments exceed its cash and other short term assets.
    Balance sheet
    This treemap shows a more detailed breakdown of United Utilities Group's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
    Assets
    Liabilities and shares
    The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
    • High level of stock/ inventory/ unsold assets.
    • Total debt is not covered by total short term assets.
    Historical Debt
    Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

    The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

    If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
    • The level of debt (262%) compared to net worth is high (greater 40%).
    • The level of debt compared to net worth has been reduced over the past 5 years (332% vs 262% today).
    • Total debt is not well covered by annual operating cash flow (less than 20% of total debt).
    • Interest on debt is not strongly covered (ideally 3x) by earnings (EBIT is 2.8x annual interest expense).
    X
    Financial health checks
    We assess United Utilities Group's financial health by checking for:
    1. Are short term assets greater than short term liabilities? (1 check)
    2. Are short term assets greater than long term liabilities? (1 check)
    3. Has the debt to equity ratio increased in the past 5 years? (1 check)
    4. Is the debt to equity ratio over 40%? (1 check)
    5. Is the debt covered by short term assets? (1 check)
    6. Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
    7. United Utilities Group has a total score of 1/6, see the detailed checks below.


    Full details on the Health part of the Simply Wall St company analysis model.

    Dividends

     What is United Utilities Group's current dividend yield, its reliability and sustainability?

    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
    Annual Dividend Income
    Dividend payments
    4.38%
    Current annual income from United Utilities Group dividends. Estimated to be 4.77% next year.
    If you bought £2,000 of United Utilities Group shares you are expected to receive £88 in your first year as a dividend.
    Dividend Amount
    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
    • Paying above low risk savings rate. (2.3%)
    • Paying above the markets top dividend payers. (3.98%)
    Historical dividend yield
    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

    We also check to see if the dividend has increased in the past 10 years.
    • Dividends per share have been volatile in the past 10 (annual drop of over 10%).
    • Dividends per share have fallen over the past 10 years.
    Current Payout to shareholders
    What portion of United Utilities Group's earnings are paid to the shareholders as a dividend.
    • Dividends paid are covered by net profit (1.6x coverage).
    Future Payout to shareholders
    • Dividends after 3 years are expected to be covered by net profit (1.3x coverage).
    X
    Income/ dividend checks
    We assess United Utilities Group's dividend by checking for:
    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
    5. How sustainable is the dividend, can United Utilities Group afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
    6. United Utilities Group has a total score of 4/6, see the detailed checks below.


    Full details on the Dividends part of the Simply Wall St company analysis model.

    Management

     What is the CEO of United Utilities Group's salary, the management and board of directors tenure and is there insider trading?

    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
    CEO
    Steve Mogford, image provided by Google.
    Steve Mogford
    COMPENSATION£2,310,000
    AGE60
    CEO Bio

    Mr. Steven Lewis Mogford, also known as Steve, has been the Chief Executive Officer of United Utilities Group PLC since March 31, 2011 and United Utilities Water Limited since March 30, 2011. Mr. Mogford served as the Chief Executive of Selex Sensors (SELEX Galileo). He served as the Chief Executive of Airborne Systems SpA. He joined Selex Sensors and Airborne Systems in May 2007. He served as the Chief Operating Officer of Programmes at BAE Systems PLC since April 1, 2000. He joined British Aerospace Military Aircraft in 1977 as a Supply Engineer and undertook various procurement roles, including Director of Procurement since 1991. Mr. Mogford served as Commercial Director of the Systems and Services Business Unit of British Aerospace upon British Aerospace formation since 1992. He served as Programmes Director of Al Yamamah since 1994 and Managing Director of Systems and Services since 1995. Since August 1998, he served as Managing Director of British Aerospace Military Aircraft and Aerostructures. Following the merger of British Aerospace and Marconi Electronic Systems in November 1999, he served as Group Managing Director Programmes and Managing Director Eurofighter of BAE Systems PLC. He has been the Senior Independent Director and Non-Executive Director at G4S plc since May 27, 2016. He serves as a Director of United Utilities Plc. He has been Director of United Utilities Water Limited since March 30, 2011 and United Utilities Group PLC since January 5, 2011. Mr. Mogford served as a Non-Executive Director at Carillion Plc from September 2006 to December 31, 2015.and served as its Senior Independent Non Executive Director from May 7, 2014 to September 1, 2015. He served as an Executive Director of BAE Systems PLC from April 2000 to May 9, 2007. He is a Member of the board of the British Quality Foundation. He was educated at Barking Abbey Grammar School in Essex and Queen Elizabeth College, London, where he obtained a First Class BSc Honours Degree in Astrophysics, Maths and Physics.

    CEO Compensation
    • CEO's compensation has been consistent with company performance over the past year.
    • CEO's compensation appears reasonable.
    Management Team

    Steve Mogford

    TITLE
    CEO & Director
    COMPENSATION
    £2,310,000
    AGE
    60

    Russ Houlden

    TITLE
    CFO & Executive Director
    COMPENSATION
    £1,463,000
    AGE
    58

    Steve Fraser

    TITLE
    Chief Operating Officer
    AGE
    41

    Rob Lee

    TITLE
    Head of Investor Relations

    Simon Gardiner

    TITLE
    Company Secretary & General Counsel
    AGE
    49

    Ruth Henshaw

    TITLE
    Head of Reward and Pensions
    Board of Directors Tenure

    Average tenure of the United Utilities Group board of directors:

    Board tenure
    5.6 years
    • The tenure for the United Utilities Group board of directors is about average.
    Board of Directors

    John McAdam

    TITLE
    Chairman
    COMPENSATION
    £295,000
    AGE
    69

    Steve Mogford

    TITLE
    CEO & Director
    COMPENSATION
    £2,310,000
    AGE
    60

    Russ Houlden

    TITLE
    CFO & Executive Director
    COMPENSATION
    £1,463,000
    AGE
    58

    Sara Weller

    TITLE
    Independent Non-Executive Director
    COMPENSATION
    £76,000
    AGE
    56

    Brian May

    TITLE
    Independent Non-Executive Director
    COMPENSATION
    £79,000
    AGE
    53

    Stephen Carter

    TITLE
    Independent Non-Executive Director
    COMPENSATION
    £71,000
    AGE
    53
    Recent Insider Trading
    Who owns this company?
    X
    Management checks
    We assess United Utilities Group's management by checking for:
    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
    3. Is the average tenure of the management team less than 2 years? (1 check)
    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
    5. United Utilities Group has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


    Note: We use the top 6 management executives and board members in our calculations.

    Note 2: Insider trading include any internal stakeholders and these transactions.

    Full details on the Management part of the Simply Wall St company analysis model.

    Company News

    Company Info

    Description

    United Utilities Group PLC provides water and wastewater services in the United Kingdom. It is also involved in renewable energy generation, corporate trustee, and property management activities; and the provision of consulting and project management services. The company operates 43,000 kilometers (km) of pipes; 77,000 km of sewerage pipes; 567 wastewater treatment works; and 91 water treatment works. It serves 3 million households and 200,000 business customers. United Utilities Group PLC was incorporated in 2008 and is based in Warrington, the United Kingdom.

    Details
    Name:United Utilities Group PLC
    Ticker:UU.
    Exchange:LSE
    Founded:2008
    Market Cap:£5,980 million
    Website:http://www.unitedutilities.com
    Listings
    Map

    Haweswater House, Warrington, WA5 3LP, United Kingdom

    Number of employees
    Street

    Current staff
    Staff numbers
    5,394
    United Utilities Group employees.
    Industry
    Industry:Water Utilities
    Sector:Utilities