Pennon Group (LSE:PNN) shares fell more than 16% on Wednesday after the water utility announced a fully underwritten rights issue of approximately £550 million and reduced its planned dividend as part of changes to its investment and financing plans.
Pennon expects its total dividend for the 2026/27 financial year to be approximately £125 million, compared with £138 million previously. The reduction will apply to both the interim and final dividends.
After taking account of the dividend reduction and rights issue, the company estimated an underlying reduction in dividend per share of approximately 30%, resulting in an expected payout of around 18 pence per share.
Pennon said it intends to increase the dividend per share in line with CPIH from the new level.
Pennon Plans £3.6 Billion of AMP8 Investment
Proceeds from the rights issue will be used to support additional investment in Pennon’s regulated water businesses.
The group now expects capital investment across the AMP8 regulatory period to total approximately £3.6 billion, around £1 billion above its original plan. Pennon said efficiencies identified during the programme will be reinvested.
Under Ofwat’s cost change process, certain additional expenditure can be recognised through increases in regulatory capital value (RCV).
In its draft decision for the 2026 cost change process, Ofwat provisionally allowed £230 million, equivalent to £190 million in 2022/23 prices. This represents 76% of the amount requested by Pennon. A final decision is expected by 15 December.
Pennon estimates that it will make approximately £170 million of additional investment through the 2027 and 2028 cost change processes, subject to regulatory approval. The company is targeting total additional RCV of £400 million through the cost change process.
Pennon Proposes Sale of Pennon Power
The group also plans to sell Pennon Power. Of the anticipated proceeds, approximately £25 million would be invested in “behind the meter” renewable generation at Pennon’s operational sites, with the remaining proceeds used to reduce group debt.
Pennon is targeting debt within its regulated water businesses of no more than 65% of RCV throughout AMP8, consistent with its long-term policy range of 55% to 65%.
Group debt measured on the same basis is expected to remain several percentage points above the regulated businesses, although Pennon said it is unlikely to exceed approximately 70%.
About Pennon Group
Pennon Group is a UK-listed water utility group operating regulated water businesses.
The group invests in water and wastewater infrastructure under the regulatory framework overseen by Ofwat, with its capital expenditure and financing plans linked to the AMP regulatory periods.
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